UNITED STATES

                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                             ______________________

                                    FORM 10-K
(MARK ONE)
  ( X )          Annual Report Pursuant to Section 13 or 15(d)
            of the Securities and Exchange Act of 1934 (Fee Required)
                   For the Fiscal Year Ended December 31, 2002

                                       Or

  (   )         Transition Report Pursuant to Section 13 or 15(d)
                     of the Securities Exchange Act of 1934
           For the transition period from ____________ to ____________

                          Commission File No. 000-19122
                                   ___________

                               APHTON CORPORATION
                         80 SW Eighth Street, Suite 2160
                              Miami, Florida 33130
                                 (305) 374-7338
Incorporated in         Securities Registered Pursuant to        I.R.S. Employer
Delaware                    Section 12(b) of the Act              Identification

                                     None.
                               Title of Each Class

                                                                 No. 95-3640931

           Securities Registered pursuant to Section 12(g) of the Act:
                         Common Stock ($.001 par value)

                             ______________________
                               Title of Each Class

               Indicate by check mark whether the registrant (1) has
               filed all reports required to be c to be filed by
               Section 13 or 15(d) of the Securities Exchange Act of
               1934 during during the preceding 12 months (or for such
               shorter period that the registrant was required to
               file such reports), and (2) has been subject to such
               filing requirements for the past 90 days.
               Yes (X) No ( )

               Indicate by check mark if disclosure of delinquent
               filers pursuant to Item 405 of Regulation S-K is not
               contained herein, and will not be contained, to the
               best of registrant's knowledge, in definitive proxy or
               information statements incorporated by reference in
               Part III of this Form 10-K or any amendment to this
               Form 10-K. ( )

               Number of shares of Common Stock ($.001 par value)
                  Outstanding as of March 28, 2003: 24,701,639

            Aggregate market value of Common Stock ($.001 par value)
            held by non-affiliates of the registrant on June 30, 2002
           based on the last sale price on June 30, 2002: $136,101,923
<PAGE>

                       Documents Incorporated by Reference

         Document                                          Part of Form 10-K
Proxy Statement for the 2003 Annual                             Part III
   Meeting of Stockholders

                                        2
<PAGE>

Item 1.  Business

                                   The Company

Our History and Product Development

Aphton Corporation  ("Aphton" or the "Company") is a biopharmaceutical  company.
We are engaged in research and development  and conduct  clinical trials for our
products, both independently and with our corporate strategic partners. We apply
our innovative active immunization  technology-platform  to develop products for
neutralizing,  and removing from circulation,  hormones and other molecules that
participate  in  gastrointestinal  system  and  reproductive  system  cancer and
non-cancer  diseases.We also are developing a product to neutralize  hormones to
prevent pregnancy.

Since 1997 we have had a strategic alliance with Pasteur Merieux Connaught,  now
Aventis  Pasteur,  for products that treat  gastrointestinal  cancers,  in North
America and Europe. Since 1998, we have had a strategic alliance with SmithKline
Beecham,  now  GlaxoSmithKline,  for  products  that treat  reproductive  system
cancers and non-cancer diseases, worldwide.

During our first five years,  we developed  the basis of our  innovative  active
immunization  (vaccine) technology and our monoclonical  antibody technology and
have  continued  developing  them to date.  In our  second  five  years,  Aphton
initiated the development of products based on those technology platforms, which
we have  continued  to date.  Since our  inception,  we have  developed a patent
estate to protect  our  technology  platforms  and our  products  after they are
commercialized.  During this period and since,  together with our  collaborating
scientists,  we have  developed the  scientific  foundations  and the scientific
literature  relating to the central role of gastrin and gastrin receptors in the
onset, development, growth and spread of adenocarcinomas of the gastrointestinal
system from the  esophagus  to the  stomach,  pancreas and liver and through the
colon and rectum.

After  conducting  toxicology  testings and pre-clinical  trials in animals,  we
initiated  phase I safety  and  phase II  dose-ranging/indications  of  efficacy
clinical trials, with G17DT and GnRH pharmaccine.  These trials demonstrated for
the first  time that a  patient's  immune  system  can be  activated  to target,
neutralize and inhibit  hormonal growth factors that fuel cancers and drive them
to  metastasize  (spread).  We  recently  reported  successful  results  from  a
randomized, double-blind, phase III trial with G17DT as monotherapy for advanced
pancreatic  cancer and from a phase II gastric (stomach) cancer trial with G17DT
in combination with the  chemotherapeutics  cisplatin and 5-FU. These trials are
described more fully under "Results and Status" in this Section.

We  achieved  our  developments,  preclinical  and  clinical  results  with  the
expenditure  approximately  $134  million in the twelve  years since our initial
public  offering in 1991. We believe we can reduce our spending  during the next
twelve  months by more than 60% to less than $16 million from the  approximately
$40 million during the 12 months of fiscal year 2002. We will pursue our primary
objective of filing for approval to market  G17DT for  monotherapy  for advanced
pancreatic  cancer  patients in the  European  Union,  Canada and  Australia  by
September  2003. We currently  have a strategic  alliance with Aventis  Pasteur,
whereby Aventis will exclusively promote, advertise, market, distribute and sell
our  anti-gastrine  vaccine  (G17DT) in North  America and Europe.  We intend to
license  G17DT to  third  parties  to  treat  human  cancers  in  other  markets
worldwide,  including Japan. We also intend to license  worldwide our monoclonal
antibody  products to target  gastrointestinal  system  cancers.  For non-cancer
therapies,  we intend to license  G17DT for the  treatment  of  gastroesophageal
reflux disease (GERD).

Clinical Trials

We are currently  completing the following  clinical  trials:  a phase III trial
conducted   outside  of  the  United  States  for  pancreatic  cancer  with  its
anti-gastrin  17 immunogen  (G17DT) as a monotherapy;  a phase II clinical trial
conducted in the United States and foreign countries,  with G17DT in combination
with the chemotherapeutics cisplatin and 5-FU for gastric cancer patients; and a
phase II trial in Europe with GnRH pharmaccine for prostate cancer patients.  We
are  conducting  a second  phase  III  trial  that has  also  completed  patient
recruitment, conducted in the United States and foreign countries for pancreatic
cancer with G17DT in combination with the chemotherapeutic  gemcitabine. We have
initiated but are not currently  recruiting patients pending funding for a phase
II trial in Europe with G17DT for gastroesophageal reflux disease (GERD), or

                                      -3-
<PAGE>

"severe  heart burn"  patients.  In addition,  our Phase II clinical  trial with
respect to  immuno-contraception  has been  initiated but is "on hold,"  pending
further funding from the WHO.

We believe that the results of the  randomized,  double  blind,  phase III trial
conducted  in  foreign  countries  with  G17DT  as a  monotherapy  for  advanced
pancreatic cancer patients,  described in more detail under "Status and Results"
in this Section, are already sufficient for filing for marketing approval in the
European Union, Canada and Australia. Therefore, Aphton has begun the process of
gathering and compiling the data and the preparation of the extensive regulatory
documentation  required for submission for marketing approval.  This process can
be expected to take  approximately  five months,  but that cannot be stated with
certainty.  Aphton expects it will receive  priority review of the filings.  The
time for review and the  granting of  marketing  approval  in each  jurisdiction
cannot, however, be predicted by Aphton with certainty.

In  addition,  we believe  that the  results  of our phase II trial for  gastric
cancer patients treated with G17DT in combination with cisplatin and 5-FU can be
described as "impressive." We plan to investigate the possibility of obtaining a
conditional  marketing approval for this therapy in a foreign jurisdiction based
on these results, when the final data is compiled,  analyzed and documented.  In
parallel,  we plan to seek  corporate  partners for G17DT for cancer  therapy in
countries  outside  of Europe  and North  America,  where we  currently  have no
licensees,  and  corporate  partners for our  monoclonal  antibody  platform for
cancer therapies and G17DT for GERD therapy, worldwide.

Financial Strategy

We finance our operations through the sale of our equity securities, convertible
debentures  and  licensing  fees.  These funds  provide us with the resources to
operate our business,  attract and retain key personnel  and  scientific  staff,
fund our research and  development  program,  pre-clinical  testing and clinical
trials, obtain the necessary regulatory approvals and develop our technology and
products.

Aphton Corporation, a Delaware corporation, was incorporated in 1981. The common
stock of Aphton has been trading on Nasdaq's  National  Market System since June
2,  1994.  Aphton  had been  traded in the  Nasdaq  Small-Cap  Issues  (formerly
over-the-counter)  market  since  April 1, 1991,  the date of  Aphton's  initial
public offering. The Company's common stock is traded under the symbol "APHT."

                                Basis of Approach

Aphton's primary approach for the treatment of major diseases such as cancer has
been to employ (anti)  "hormone  therapy."  Aphton's  hormone  therapy  involves
neutralizing,  or  blocking,  targeted  hormones  which play a critical  role in
diseases of the gastrointestinal and reproduction  systems.  Aphton has selected
the strategy of hormone  therapy because hormone therapy has proved over decades
to be  efficacious  in the  treatment  of major  diseases,  both  malignant  and
non-malignant.  Well-documented  examples of the efficacy of hormone  therapy in
humans are blocking gastrin  (Proglumide) or blocking another hormone stimulated
by gastrin,  namely histamine (Zantac,  Tagamet),  to reduce stomach acid. These
hormone  therapies  treat GERD,  ulcerations of the esophagus and peptic ulcers.
Additional  examples of hormone therapy include blocking  estrogen  (Tamoxifen),
for breast cancer therapy and blocking the production of  testosterone  (Lupron,
Zoladex) for prostate cancer therapy.

                                      -4-
<PAGE>

                               Results and Status

The status of our products under  research and  development is summarized in the
following table.

<TABLE>
<caption>
                                                                                                        Strategic
      Product           Indication(s)             Product Description              Status(1)(2)         Alliances
      -------           -------------             -------------------              ------------         ---------
<S>                     <C>                 <C>                                 <C>                    <C>

Anti-Gastrin 17       Advanced            The vaccine, containing a portion     Phase III clinical     Aventis
(G17DT) for           pancreatic cancers  of the hormone gastrin 17 (G17),      trial:  G17DT          Pasteur(3)
Gastrointestinal                          and diphtheria toxoid (DT),           administered  as a
Cancers                                   chemically bound together to form     monotherapy
                                          G17DT, neutralizes both G17 and the
                                          hormone Gly-G17 to treat advanced
                                          pancreatic cancer.

Anti-Gastrin 17       Advanced            The vaccine, containing a portion     Phase III clinical     Aventis
(G17DT) for           pancreatic cancers  of the hormone gastrin 17 (G17),      trial:  G17DT          Pasteur(4)
Gastrointestinal                          and diphtheria toxoid (DT),           administered with
Cancers                                   chemically bound together to form     Gemcitabine, a
                                          G17DT, neutralizes both G17 and the   chemotherapy
                                          hormone Gly-G17 to treat advanced
                                          pancreatic cancer.

Anti-Gastrin 17       Advanced stomach    The vaccine, containing a portion     Phase II clinical      Aventis
(G17DT) for Gastric   cancer and/or       of the hormone gastrin 17 (G17),      trial: G17DT           Pasteur(5)
and                   esophagus cancers   and diphtheria toxoid (DT),           administered with
Gastro-Esophageal                         chemically bound together to form     the
Cancers                                   G17DT, neutralizes both G17 and the   chemotherapeutics
                                          hormone Gly-G17 to treat advanced     Cisplatin and 5-FU
                                          stomach cancer and/or esophagus
                                          cancer.

GnRH Pharmaccine      Reproductive        A vaccine that neutralizes the GnRH   Phase II clinical      GlaxoSmith
                      system cancers      hormone for hormone-failed or         trial: GnRH            Kline(6)
                      (including          hormone-resistant patients with       pharmaccine
                      prostate cancer)    prostate cancer.                      administered with
                                                                                Taxotere, a
                                                                                chemotherapy

Anti-Gastrin 17       Gastro-intestinal   An anti-gastrin vaccine,   that       Phase II clinical      None
(G17DT) for           ulcerations and     neutralizes G17 to treat GERD and     trial, initiated but
Gastro-Esophageal     GERD                gastro-intestinal ulcerations.        not currently
Reflux Disease                                                                  recruiting patients;
(GERD)                                                                          pending funding

Immuno-               Prevent pregnancy   A prophylactic (contraceptive)        Phase II clinical      World Health
Contraception         in women            vaccine that neutralizes a female     trial initiated but    Organization
                                          hormone known as hCG.                 awaiting further       (WHO)
                                                                                funding by WHO
</table>

                                      -5-
<PAGE>


(1)  The first, third and fourth of these trials are fully recruited and nearing
completion.

(2)  Clinical trials of a new drug are typically  conducted in three  sequential
phases.  Phase I studies typically test the product for safety tolerance.  Phase
II studies involve limited trials to determine the optimal dose and frequency of
administration and an indication of efficacy for defined  indications.  When the
product has been found safe and shows  promise of efficacy,  further  trials are
undertaken in Phase III to fully evaluate  clinical efficacy and to further test
for  safety  typically  using a  large  and  geographically  diverse  number  of
patients.
(3),(4),(5) For countries in North America and Europe.
(6)   For countries worldwide.

Anti-Gastrin Immunogen (G17DT)

Our current anti-gastrin immunogen, or vaccine,  clinical programs treat several
human gastrointestinal system adenocarcinomas, including those of the esophagus,
stomach and pancreas,  metastases  to the liver and may treat  metastases of the
liver, colon and rectum.

Our anti-gastrin  targeted  therapy induces  antibodies in patients that bind to
both gastrin 17 and gly-gastrin and remove them from circulation before they can
bind to the cancer cell and initiate cell growth. Gastrin 17 and gly-gastrin are
believed to be central  growth  factors,  or the  initiating  signals,  for cell
growth,  cell  proliferation and metastasis  (spread) in gastric,  i.e. stomach,
pancreatic, esophageal, colorectal, liver and other gastrointestinal (GI) system
cancers.  This signaling program is accomplished by gastrin binding to the large
numbers of gastrin  receptors  which appear,  de novo, in the great  majority of
cases,  on  tumor  cell  surfaces   throughout  the   gastrointestinal   system.
Interrupting  this process by immunizing the patient with Aphton's  anti-gastrin
immunogen is a precisely "targeted" immunotherapy. This specificity of targeting
only cancer cells occurs  because  gastrin is not normally  secreted and gastrin
receptors  are not  normally  found on cells in the GI system,  unless  they are
malignant,  or on the path to malignancy  (except for those cells  involved with
normal acid secretion).

Recent  findings  have shown that  inhibiting  gastrin  not only  inhibits  cell
growth,  proliferation  and metastasis  directly,  but also "unblocks" a central
pathway leading to cell-suicide  (apoptosis).  This tilts the balance, from cell
growth, to cell suicide. This effect is amplified  synergistically when Aphton's
drug is given  together with a  chemotherapeutic  drug, as  demonstrated  in our
phase II trial for gastric  cancer  patients  treated with G17DT in  combination
with  cisplatin  and 5-FU,  described  hereunder.  Gastrin also  stimulates  the
secretion and expression of other important  growth factors and receptors within
and on the  surfaces  of the  cancer  cells  involved  in tumor  growth.  Hence,
inhibiting  gastrin inhibits all of the foregoing factors  contributing to tumor
growth  and  spread,  while  simultaneously  opening a central  pathway  to cell
suicide.  Aphton's  anti-gastrin targeted therapy adds a biological dimension to
the treatment of gastrointestinal cancers.

We know of no other vaccine or drug that selectively  blocks or neutralizes both
gastrin  17  and   glycine-extended   gastrin  17.  Aphton   believes  that  its
anti-gastrin   vaccine  can  extend   survival  in   patients   suffering   from
adenocarcinomas  of  the  gastrointestinal   system,   without  adding  systemic
toxicity.

Phase III clinical trial for patients with advanced pancreatic cancer

In March 2003 Aphton announced that it had met with and presented results of its
randomized,  double blind,  controlled,  monotherapy,  Phase III clinical  trial
conducted in Europe with G17DT on patients with advanced  pancreatic cancer to a
foreign regulatory authority.

The  presentation  of the most recent  analysis of the data  resulting  from the
Phase III clinical trial, which is not yet completed, as some patients are still
alive,  demonstrated  an  overall  median  survival   benefit  of  83%,  with  a
statistically  significant value of p. The  corresponding  hazard ratio (HR) was
0.65,  which  also had a  statistically  significant  value of p. (an HR of 0.65
means that at any point in time,  patients on G17DT had a 154% higher likelihood
of  surviving  longer than  patients on the  control.)  Because  there are still
surviving patients in the trial that are being treated, the results of the final
analysis could vary. If further details on the trial were to emerge prior to its
completion,  there is a  possibility  that the  result  of the  analysis  of the
standard  of  care  of the  remaining  patients  could  be  influenced,  thereby
jeopardizing  both their  inclusion  in the final  statistical  analysis and the
ultimate breadth of the indication allowed in each jurisdiction.

                                      -6-
<PAGE>

The latest  Phase III clinical  trial  results  update the results  announced by
Aphton on October 28, 2002 which  reported on clinical  trials on patients  with
advanced pancreatic cancer who had received no previous therapy and were treated
either with Aphton's anti-gastrin immunogen G17DT as a monotherapy,  or with the
control.  The  primary  efficacy  measure  was  survival  time  from the date of
randomization. A summary of the results reported is as follows: a) patients with
stage IV pancreatic  cancer  treated with G17DT had a median  survival time that
was 53% longer  than the stage IV  patients  in the  control  arm; b) 25% of the
patients  with  stage IV  pancreatic  cancer who were  treated  with G17DT had a
survival  time that was 106% longer than the control  arm; and c) the overall HR
was 0.7;  that is to say,  at any  point in time,  patients  on G17DT had a 143%
higher likelihood of surviving longer than patients on the control.

It is estimated that approximately 88,000 new cases of pancreatic cancer will be
diagnosed in the United  States and Europe this year.  The prognosis for most of
these  patients is very poor.  At the time of diagnosis,  the great  majority of
patients have the disease in its advanced stages, which is considered incurable,
and the patients have a very short survival time.  Surgery,  when possible,  and
chemotherapy are the primary  treatment options  currently  available,  but have
shown only very limited benefit.  Aphton believes that its anti-gastrin targeted
immunotherapy  approach  has the  potential  to  extend  patient  survival  time
significantly without adding systemic toxicity.

We believe that the results of the trial are already  sufficient  for filing for
marketing  approval in the  European  Union,  Canada and  Australia.  Therefore,
Aphton  has  begun the  process  of  gathering  and  compiling  the data and the
preparation of the extensive  regulatory  documentation  required for submission
for marketing approval.  This process can be expected to take approximately five
months,  but cannot be stated with  certainty.  Aphton  expects it will  receive
priority  review  of the  filings.  The  time for  review  and the  granting  of
marketing approval in each jurisdiction cannot,  however, be predicted by Aphton
with certainty.

We believe that with these clinical trials and regulatory developments,  we have
reached the  decisive  turning  point in our  corporate  development  and in the
pursuit of our corporate objectives.

Fast Track  designation for G17DT  (anti-gastrin)  immunogen in combination with
cisplatin and 5-FU for use in stage IV gastric cancer

On  February  21,  2003,   Aphton   announced   that  the  U.S.  Food  and  Drug
Administration  (FDA)  granted its request  for Fast Track  designation  for its
G17DT (anti-gastrin) immunogen in combination with cisplatin and 5-FU for use in
stage IV gastric cancer to improve  overall  survival.  "Fast Track" is a formal
mechanism of interacting with the FDA using approaches that are available to all
applicants  for  marketing  claims.  The  benefits  of a Fast Track  designation
includes  scheduled  meetings  with the FDA to seek FDA input  into  development
plans, the option of submitting a New Drug Application in sections rather than a
submission  of all  components  simultaneously,  and the  option  of  requesting
evaluation of studies using surrogate  endpoints.  The Fast Track designation is
intended for the  combination  of a product and a claim that  addresses an unmet
medical need, but is independent  of the FDA's priority  review and  accelerated
approval mechanisms.

It is  estimated  that there are  approximately  570,000  patients  with gastric
cancer in the United  States,  Europe and Japan  alone.  The  prognosis  for the
overwhelming  majority of these patients is very poor.  Patients  diagnosed with
metastatic  disease have  five-year  survival rates of only about three percent.
Currently, surgery and chemotherapy are the primary treatment options, but these
regimens  have  shown  only  very  limited  benefit.  Aphton  believes  that its
anti-gastrin targeted immunotherapy approach has the potential to extend patient
survival without adding systemic toxicity.

Phase II clinical  trial with patients with  metastatic  stomach cancer who were
treated with Aphton's G17DT and chemotherapy consisting of cisplatin and 5FU

On  February  6, 2003 Aphton  reported  an interim  analysis  of tumor  response
results from its phase II clinical trial with patients with  metastatic  stomach
cancer who were treated  with  Aphton's  G17DT and  chemotherapy  consisting  of
cisplatin and 5FU. This report follows interim  response results reported at the
American Society of Clinical Oncology (ASCO) in an interim report dated July 31,
2002,  which reported an overall tumor response rate of 51.4%, an interim report
at the ASCO annual meeting dated June 12, 2002, which reported an overall tumor.

                                      -7-
<PAGE>

response  rate of 48.3% and an  initial  report  dated May 17,  2002 at the ASCO
annual meeting, which reported an overall tumor response rate of 53%.

A total of 103 patients were enrolled, of which 73 were evaluable.  Thirty-seven
patients had either a partial or a complete tumor response, for an overall tumor
response  rate of 51%. Two patients had a complete  response (CR - no detectable
residual  tumor) and 35 had a partial  response  (PR). An additional 23 patients
had  stable  disease.  Throughout  the  trial,  there was no  systemic  toxicity
attributed to G17DT. One patient showed a previously unseen response pattern. He
first  responded to treatment with the  combination  of G17DT and  cisplatin/5FU
with a reduction of the tumor lesions by approximately 70% (a partial response).
Subsequently,  the  disease  stabilized  (i.e.  the size of the  lesions did not
increase  for between 7 to 8 months,  in spite of  discontinuation  of treatment
with  cisplatin  halfway  through the study period  because of  neuropathy).  An
additional  treatment with G17DT in October 2002,  the fifth overall  treatment,
resulted in a reduction of the tumor  lesions (PR) by a further 80%.  Subsequent
to the sixth treatment in January 2003,  there was a complete  disappearance  of
all lesions, the second complete response in the study. Sixteen months after his
first  treatment,  the patient was alive and doing well,  with no residual tumor
detectable.  Aphton's  anti-gastrin  targeted  immunotherapy  adds a biological,
non-toxic dimension to the treatment of gastrointestinal cancers.

There is only one  large,  randomized,  phase III  clinical  trial that has been
reported in the medical  literature  with  cisplatin  plus 5FU for patients with
advanced gastric cancer.  Of 399 total patients  enrolled in the trial, 245 were
evaluable.  For the patients treated with cisplatin plus 5FU, the tumor response
rate  was 20%,  as  reported  by the  European  Organization  for  Research  and
Treatment of Cancer (EORTC) which conducted the trial.  The results  reported by
Aphton  today  compare  favorably  with those  results.  They  represent  a 155%
improvement relative to the 20% results reported in the EORTC clinical trial.

Aphton's  July 31, 2002 interim  results  from its phase II clinical  trial with
patients with metastatic stomach cancer who were treated with Aphton's G17DT and
chemotherapy  consisting of cisplatin and 5FU updated  results  reported on June
12, 2002.  Of 72 evaluable  patients  reported  upon this time,  37 had either a
partial or a complete  tumor  response  for an overall  tumor  response  rate of
51.4%. One patient had a complete response (no detectable residual tumor) and 36
had a  partial  response  (tumor  shrinkage  by 50% or  more).  Furthermore,  an
additional 20 patients had stable disease.

Aphton's  June 12, 2002 interim  results  from its phase II clinical  trial with
patients with metastatic stomach cancer who were treated with Aphton's G17DT and
chemotherapy  consisting  of cisplatin and 5FU updated  results  reported at the
ASCO annual meeting on May 17, 2002. Of 58 evaluable patients reported upon this
time, 28 had either a partial or a complete  tumor response for an overall tumor
response  rate of 48.3%.  One patient  had a complete  response  (no  detectable
residual tumor) and 27 had a partial  response (tumor shrinkage by 50% or more).
Furthermore,  an additional 21 patients, or 36.2% of the evaluated patients, had
stable  disease.  Thus,  a total of  84.5%  of the  patients  had  either  tumor
shrinkage or stable disease.

Aphton's  May 17, 2002 report at the ASCO annual  meeting  presented  highlights
from several clinical trials and studies with Aphton's anti-gastrin 17 immunogen
(G17DT). Audited results from a Phase II clinical trial in the United States and
Europe with  previously  untreated  patients  with advanced  metastatic  stomach
cancer treated with Aphton's anti-gastrin 17 immunogen (G17DT) were presented by
the principal  investigator,  Dr.  Jaffer Ajani,  MD. He noted that there was no
approved therapy  currently  available and that  chemotherapy is considered only
palliative.  Dr.  Ajani  presented  additional  audited  interim  results of the
clinical  trial with patients with  metastatic  stomach  cancer who were treated
with Aphton's G17DT and chemotherapy  consisting of cisplatin and 5FU. Of the 36
reported and audited evaluable patients,  19 had a partial tumor response (tumor
shrinkage by 50% or more) for an overall response rate of 53%. One patient had a
complete response (no detectable  residual tumor) and 18 had a partial response.
These  results   compared   favorably  with  the  reported   response  rates  of
chemotherapy with cisplatin plus 5 FU/Leucovorin. Aphton's anti-gastrin targeted
therapy  added a  biological  dimension  to the  treatment  of  gastrointestinal
cancers.

                                      -8-
<PAGE>

On February 8, 2002, Dr. Ajani,  announced interim results of the gastric cancer
Phase II clinical trial with Aphton's  immunogen,  G17DT, in a symposium  titled
"G17DT:   A  New  Approach  to  Growth  Factor   Neutralization"   at  the  12th
International  Congress on Anti-Cancer  Treatment  held that week in Paris.  The
symposium was chaired by Dr. Ajani.  Dr. Ajani presented an interim  analysis of
the first 30 patients on whom  results  were  available.  No side  effects  were
attributed to the immunogen. When administered with G17DT the patients completed
on  average  5.5 cycles of  chemotherapy,  compared  to a normal  average of 2.5
cycles completion before side effects force discontinuation. Of the 30 patients,
15 had a partial tumor response (tumor  shrinkage by 50% or more) for an overall
response  rate of 50%.  One  patient  had a  complete  response  (no  detectable
residual tumor) and 14 had a partial  response.  These results compare favorably
with reported response rates of chemotherapy with cisplatin plus 5 FU/Leucovorin
in large,  controlled  clinical  trials for  patients  with  metastatic  gastric
cancer.  The results  discussed the two trials  conducted in the United  Kingdom
with respect to Aphton's anti-gastrin immunogen.

The results  discussed  above  updated the results  presented in May 2001 at the
annual  meeting  of the  ASCO  in San  Francisco  with  respect  to two  studies
conducted in the United Kingdom on Aphton's anti-gastrin 17 immunogen.

In the first trial, conducted at the Royal Free Hospital,  University College in
London,  30 patients with  histologically  proven locally advanced or metastatic
pancreatic  cancer were immunized with Aphton's  anti-gastrin  17 immunogen,  at
different  doses.  Of the patients  immunized with the lower dose, 46% responded
with  antibodies  to gastrin,  while 82%  responded at the higher  dose.  Median
survival (50%) for all patients,  both lower and higher doses,  was 187 days and
median survival for patients  responding with anti-gastrin 17 antibodies was 217
days. For  comparison,  median  survival for patients  receiving best supportive
care is approximately 130 days.

In a larger, second trial conducted at the Queens Medical Center,  University of
Nottingham,  37 patients  immunized with anti-gastrin 17 immunogen were compared
with 37 patients  receiving  best  supportive  care. In this larger  study,  the
patients  received  only the higher dose.  Median  survival was 297 days, or 9.9
months,  as compared to the control  group,  which had a median  survival of 109
days,  or 3.6 months.  This  represents a factor of 2.75,  or a 175% increase in
median survival.  Moreover,  more than a third of the immunized  patients gained
weight,  which is highly unusual for patients with advanced  pancreatic  cancer.
For  further  comparison,   the  patients  receiving  Aphton's  anti-gastrin  17
immunogen  had a median  survival  of 9.9 months,  whereas the  chemotherapeutic
gemcitabine,  the only approved drug for pancreatic cancer in the United States,
had a median  survival of  approximately  5.5 months,  in the pivotal trial upon
which its approval was based.

Orphan Drug status for G17DT for both  pancreatic  cancer and gastric  (stomach)
cancer indications

On January 22, 2003 Aphton announced that it had received official  notification
that the Committee for Orphan  Medicinal  Products (COMP) had recommended to the
European  Commission of the EU that  Aphton's  anti-gastrin  immunogen  G17DT be
granted  Orphan Drug  status for both  pancreatic  cancer and gastric  (stomach)
cancer indications.

On December 19, 2002, Aphton announced that it had received official notice from
the  Therapeutic  Goods  Administration   (TGA),  the  regulatory  authority  in
Australia  equivalent to the U.S. FDA, granting its anti-gastrin G17DT Immunogen
Orphan-Drug status for treatment of both pancreatic cancer and gastric (stomach)
cancer.  Unlike in the United  States,  the Australian  orphan-drug  designation
automatically   confers  priority   evaluation  for  the  drug  ahead  of  other
evaluations.

On July 23, 2002, Aphton announced that it had received official notice from the
FDA granting its anti-gastrin  G17DT Immunogen  Orphan-Drug status for treatment
of gastric  (stomach)  cancer.  The  indication  designated was broader than the
indication originally sought by Aphton.

On July 17, 2002, Aphton announced that it had received official notice from the
FDA  granting its  anti-gastrin  G17DT  immunogen  Orphan-Drug  designation  for
treatment of  adenocarcinoma  of the pancreas.  The  indication  designated  was
broader than the indication originally sought by Aphton.

                                      -9-
<PAGE>

The term  "orphan-drug"  in the United  States refers to a product that treats a
rare disease affecting fewer than 200,000 Americans.  Orphan-Drug Status confers
a 7-year  period of exclusive  marketing  rights for G17DT for this  indication,
thereby protecting it from similar drugs of the same class. In addition,  Aphton
is qualified to apply for grant  amounts  totaling up to $900,000  over a 3-year
period, with a maximum of $300,000 per year. Furthermore,  the requirement for a
$300,000 user fee that is payable with the submission of a New Drug  Application
is waived for an Orphan Drug.

Results of other studies and reviews

On May 23,  2002,  at the  annual  meeting of the  American  Gastroenterological
Association (AGA) being held in San Francisco,  Aphton collaborators  received a
Blue Ribbon Award Poster of Distinction for one of the four  scientific  posters
relating to  Aphton's  anti-gastrin  immunogen  (G17DT),  the gastrin  family of
growth factors and their  receptors,  the inhibition of these growth factors and
receptors,  their role in tumor growth, new blood vasculature (angiogenesis) and
apoptosis, or cell suicide.

The Blue Ribbon Award was given for Aphton's  studies  showing that both gastrin
17  (G-17)  and the  precursor  gly-G-17  are  able to  induce  specific  growth
responses  that lead to the branching  and tubular  networks  characteristic  of
angiogenesis,  in a human  endothelial  cell system (cells  responsible  for the
development of new blood vasculature). Most importantly, the studies showed that
the  angiogenic  stimulus  in this cell  system was equal in  magnitude  to that
caused by VEGF,  which has received much  attention in the  scientific  and drug
development literature.  Furthermore,  the studies showed that neutralization of
G-17 and  gly-G-17  by  Aphton's  anti-G17-DT  caused a strong  and  significant
reversal of (angiogenic)  effects  confirming their  specificity of action.  The
studies also  demonstrated in these angiogenic  cells, at both the molecular and
protein   level,   that   gastrin/CCK-2   receptor  was   expressed,   and  that
gastrin/CCK-2R  in these blood vessel  forming  cells was of the type that had 3
times increased affinity for gly-gastrin than for G-17 (amidated) gastrin, which
is characteristic of the receptors found in metastatic  tumors. It was concluded
that these studies  presented  evidence for an angiogenic  role for gastrin,  in
addition to its widely  acknowledged role as a growth factor for GI-cancer cells
and its  spread.

A second study reported upon at the meeting investigated the mechanism of action
by which an Aphton  monoclonal  antibody (Mab) targeted  against the receptor to
which G-17 binds, called the CCKB/Gastrin receptor, is taken up by a liver tumor
cell,  enters the cell  nucleus  and results in cell  death.  Five liver  cancer
(hepatoma) cell lines, both human and animal,  were studied.  The results showed
that in all five cell lines, uptake of the (Aphton) labeled anti-CCK-BR antibody
was correlated  with apoptosis.  The study concluded that a direct  relationship
between the uptake of the  antibody and cell death by  apoptosis  existed.  This
observation  has  important  implications  in the  treatment of CCK-BR  positive
tumors including hepatomas where there are limited therapeutic options."

A third study presented  findings on the varying  structure of the receptors for
gastrin 17 and gly-gastrin 17 during the progression of malignancy; and a fourth
study  investigated  the effect of Aphton's  anti-gastrin  immunogen  (G17DT) on
human pancreatic cancer cells,  concluding that gastrin inhibition increases the
potency of the cytotoxic agent Gemcitabine in pancreatic cancer.

In June, 2001, scientists in collaboration with Aphton published a peer-reviewed
article  with the new  findings  that the  genes  for both the  gastrointestinal
hormone  gastrin and its receptor are  "switched  on" at the earliest  stages of
pre-malignancy  in stomach cells,  helping to fuel their  progression to cancer.
The   article   entitled:   "Expression   of  Gastrin  in   Developing   gastric
Adenocarcinoma" appeared in the issue of British Journal of Surgery, 2001 Volume
88.

On May 15, 2002,  Dr. Jaffer Ajani,  MD presented the first results from a Phase
III  clinical  trial at the MD  Anderson  Cancer  Center in Houston,  Texas,  in
treating  patients  with  advanced,  metastatic  stomach  cancer  with  Aphton's
anti-gastrin  17 immunogen.  Dr. Ajani,  began the  discussion by describing the
worldwide  incidence,  stage of disease and expected  (short)  survival  time at
detection,  and very high death rate  statistics for stomach cancer (the highest
annual number of deaths  worldwide of all cancers  after lung cancer).  He noted
that  there  is  no  approved  therapy  currently  available;   chemotherapy  is
considered  palliative,  only. Dr. Ajani then proceeded  directly to provide the
interim  results of the trial with patients with  metastatic  stomach cancer who
were treated with  Aphton's  anti-gastrin  17 immunogen  and  chemotherapy  with
cisplatin and 5FU.

                                      -10-
<PAGE>

Of the six reported evaluable patients:

     1)   The first patient had six large liver metastases. After treatment with
          Aphton's immunogen and the ehemos,  all of the metastases  disappeared
          completely  (unexpectedly),  as  shown  by  repeated  CAT  scans.  The
          "before" and "after" photos were dramatic.  This is termed a "complete
          response."

     2)   Two of the patients  had tumor  volume  shrinkage of greater than 50%.
          This is termed a "partial response."

     3)   Three  of the  patients  had tumor volume  shrinkage of less than 50%.
          This is termed a "moderate response."

Thus all (100%) of the patients  responded.  Fifty  percent of the patients were
partial or greater responses, including a complete response. Since the remaining
50% were moderate responses, none even had to be termed "stable" (as yet), which
is the cytostatic state hoped for and to be expected from depriving cells of the
growth factor gastrin 17.

Anti-Gastrin Immunogen Alliance

In 1997 Aphton signed an agreement  with Pasteur  Merieux  Connaught (now called
"Aventis Pasteur") ("Aventis Pasteur" or "Aventis") for a strategic alliance for
all human cancer applications of its anti-gastrin  immunogen product,  including
stomach/esophageal,  colorectal,  and pancreatic cancers. Under the terms of the
twenty-year agreement,  Aphton is responsible for product development,  clinical
trials and regulatory agency  approvals,  and Aventis Pasteur is responsible for
and will fund the promotion,  advertising,  marketing,  distribution and sale of
Aphton's anti-gastrin vaccine in North America,  Mexico and Europe. In addition,
Apthon and Aventis Pasteur have entered into agreements providing for the supply
of certain  components  of the  anti-gastrin  immunogen (as well as other Aphton
products) from Aventis Pasteur to Aphton. See our full discussion of the Aventis
Pasteur agreements under Strategic Alliances in this Section.

GnRH pharmaccine

Overview

Aphton has developed an  anti-hormone  immunogen,  GnRH  pharmaccine,  for human
cancer  indications,  one that  targets the  reproductive  hormone  Gonadotropin
Releasing Hormone (GnRH).  By neutralizing  (blocking) GnRH, the immunogen shuts
down the production of estrogen and  progesterone  (in females) and testosterone
(in males),  which are normally  produced in their  respective  gonadal  organs.
Estrogen  fuels  breast  cancer and  testosterone  fuels  prostate  cancer.  The
biological  blockage,  like physical  castration,  should be  efficacious in the
treatment of prostate and breast cancers.  Aphton's anti-GnRH  immunogen induces
biological blockage.

In 2001 Aphton successfully completed a pilot Phase I/II safety and dose ranging
trial  and  has  reported  on  the  results  through  a  news  release  and in a
publication  with  collaborating   scientists  in  the  United  Kingdom,   in  a
peer-reviewed  journal. The primary purpose of the safety and dose ranging trial
was to  demonstrate  safety;  the  secondary  purpose  was to gather  data using
various  doses of immunogen  and to show that a biological  castration  could be
induced with Aphton's immunogen.

Aphton's GnRH  pharmaccine  reduced,  in some patients at the lowest dose level,
gonadal testosterone to levels achieved by surgical castration.  This biological
castration  demonstrated  "proof of concept" in man. In  addition,  the prostate
cancer  "progression"  marker,  Prostate  Specific  Antigen  (PSA),  was reduced
markedly in these patients to very low levels,  in some cases from  triple-digit
to single-digit.

Aphton is  completing  a Phase II  clinical  trial in  Europe to treat  prostate
cancer  patients who have failed  hormone  therapy  (called  hormone  refractory
patients),  with a combination  immuno-chemo  therapy regimen  comprised of GnRH
pharmaccine,  and the chemotherapeutic  taxotere. Such patients will likely have
been treated with a GnRH agonist drug (to achieve a chemical  castration)  or an
orchiectomy (a surgical  castration),  following  therapy for the primary tumor,
but will have metastases, relapsed and have a rising PSA.

Strategic Alliance

                                      -11-
<PAGE>

In June 1998,  Aphton and  GlaxoSmithKline  signed a  Collaboration  and License
agreement,  granting GlaxoSmithKline exclusive rights worldwide to Aphton's GnRH
related patents and proprietary technology.  The agreement covers the diagnosis,
treatment  and  prevention  of GnRH product are  prostate,  breast,  ovarian and
endometrial cancer. Additional medical indications for the anti-GnRH product are
endometriosis, polycystic ovaries, uterine fibroids, contraception,  infertility
and precocious puberty. Under terms of the agreement, Aphton and GlaxoSmithKline
are collaborating in a joint product development  program,  with GlaxoSmithKline
responsible  for phase III clinical  trials and  regulatory  approvals,  and for
worldwide marketing and distribution of approved products.  The agreement uses a
royalty  mechanism  based on product sales,  in dollars,  worldwide to determine
Aphton's  revenues.  See our  full  discussion  of the  GlaxoSmithKline  license
agreement under Strategic Alliances in this Section.

GERD

Aphton is also developing its anti-Gastrin  immunogen approach for the treatment
of  gastroesophageal  reflux disease (GERD),  also known as "severe  heartburn."
GERD affects more than 20% of the adult population.  Prescription drugs to treat
this  problem  have annual  revenues of over $13  billion.  Aphton  believes its
therapy for GERD, which is not yet partnered with any drug company, will obviate
major risks  associated  with  current  therapies  while still  providing  their
benefits,  as well as providing more symptomatic  relief, in this symptom-driven
disease,  for which current therapies are inadequate in approximately 50% of the
patients.  As a preliminary to conducting a Phase III trial for GERD, Aphton has
conducted a limited Phase II trial in Europe to optimize the product,  given the
different performance-profile desired for this major, non-cancer application and
has  initiated a  comprehensive  Phase II trial in Europe,  but is not currently
recruiting patients pending further funding.

Immunocontraceptive

Aphton's  anti-hCG  immunocontraceptive  product,  which is being  developed  to
prevent  pregnancy,  has been in a Phase II trial,  funded  by the World  Health
Organization  (WHO) and is currently awaiting further funding by WHO for further
development.  See our discussion of the WHO strategic  alliance under  Strategic
Alliances in this Section.

Equine Anti-Gastrin Immunogen

In 1997,  the Company  entered into a strategic  alliance  with  Schering-Plough
Animal  Health  covering  all animal  health  applications  of our  anti-gastrin
immunogen.  See our discussion of the  Schering-Plough  Animal Health  agreement
under Strategic Alliances in this Section.

                                   Technology

Aphton's  approach  to the  treatment  of major  diseases  is to  employ  (anti)
"hormone therapy." Aphton's hormone therapy involves neutralizing,  or blocking,
certain  hormones  that  play  a  critical  role  in  these  diseases.  This  is
accomplished by immunizing the patients with a product called, appropriately, an
"immunogen,"   that  induces  in  them  a  directed   antibody   response  which
neutralizes, and removes from circulation, the targeted hormone.

Aphton  has  developed  an  innovative  and  proprietary   active   immunization
technology  platform  to  create  effective   immunogens,   which  are  products
administered like vaccines.  The immunogens harness and direct the body's immune
system to generate  antibodies,  which bind to specific  peptide portions of the
administered immunogen. These antibodies cross-react (bind) with targeted "self"
molecules,  such as hormones,  when they  encounter that portion of the hormone,
which is similar to the peptide portion of the administered  immunogen.  Because
diseases involving hormones are not pathogen  (microorganism)  driven, they have
not been viewed  traditionally as being susceptible to treatment with immunogens
to activate the body's immune system against  targeted  hormones.  Instead,  the
traditional  pharmaceutical  industry approach to controlling these diseases has
been to treat them with synthetic drugs. However,  these drugs typically must be
administered  in  relatively  large  quantities  and on a daily or more frequent
basis, giving rise to patient compliance  problems,  and often have adverse side
effects.

                                      -12-
<PAGE>
Aphton's  immunogens  create a strong  antibody  response from the patient's own
immune  system  (which  effectively  becomes a "drug  factory")  and have a more
potent and longer-lasting  therapeutic effect. Aphton's technology enables it to
specifically  target a small sequence within the hormone to be  neutralized,  in
order to achieve a specific desired biological and physiological  response. This
approach directs all of the immunogen-induced antibodies to the targeted hormone
sequence.   At  the  same  time  it  minimizes  the   possibility  of  undesired
physiological  consequences  through  cross-reactivity of the immunogen with any
self molecule or portion thereof, other than the  specifically-targeted  hormone
sequence.  This avoids the possibility of autoimmune  disease where the antibody
production is not "turned off." This is because the antibody production can only
be "turned on and kept on" in the presence of the foreign,  "carrier" portion of
the immunogen  (see below).  Indeed,  without a "booster shot" of the immunogen,
the antibodies wane (diminish) and are cleared by the body, over time.  Aphton's
products may be administered in much smaller dosages and on a much less frequent
basis  than  pharmaceutical  drugs;  typically  twice  a  year.  This  virtually
eliminates  the  problem  of  patient  compliance,   which  is  associated  with
pharmaceutical drugs.

Aphton's anti-gastrin immunogen product, for example, consists of:

    (a)   A  synthetic  peptide,  which is similar  to a portion of the  hormone
          gastrin  17 which is  targeted  to be  neutralized  (i.e.,  blocked or
          prevented from reaching and binding to its receptor).

    (b)   A "carrier,"  Diphtheria Toxoid (DT),  foreign to the body, to which a
          number  of  the  synthetic   peptides  in  (a)  are  chemically  bound
          (conjugated).  This  makes  them  available  to be both  bound to and,
          together  with the DT,  internalized  by  "B-cells."  DT contains  the
          structures  (epitopes)  which,  when  internalized  and "presented" on
          B-cells  and  Macrophages,  are bound to by  "T-cells."  By binding to
          these foreign epitopes,  these T-cells in turn, proliferate and signal
          the B-cells,  which bind to the peptides in (a) to proliferate  and to
          "mass  produce"  the  desired  antibodies  (all of  which  bind to the
          peptide in (a)).

    (c)   A proprietary,  slow-release  "suspender"  which contains (a) and (b).
          This "delivery  vehicle" is designed to enable the achievement of four
          objectives,  concurrently:  i) a high  antibody  response;  ii) a long
          antibody  response;  iii) no  systemic  toxicity;  and  iv)  long-term
          stability, or "shelf-life."

The anti-gastrin product, which is administered by injection, with booster shots
at approximately  six-month  intervals,  thus induces  antibodies in the patient
which bind with the peptide in (a) above and which also bind  (cross-react) with
and neutralize  gastrin 17 (when they encounter that portion on gastrin 17 which
is similar to peptide (a)).  Gastrin 17 is known to drive (or fuel)  colorectal,
stomach, liver and pancreatic cancer.  Neutralizing gastrin 17 inhibits both the
growth and metastasis (spread) of these  gastrointestinal  cancers. In addition,
the anti-gastrin product uniquely neutralizes glycine-extended gastrin 17, which
has  also  been  shown   recently   to  be   secreted   by  and  to  fuel  these
gastrointestinal system cancers.

Gastrin 17 is also  responsible  for the  production of the bulk of stomach acid
(approximately  90% in humans),  the reduction of which is therapeutic  for GERD
and for both peptic  ulcers and  non-steroidal  anti-inflammatory  drug  (NSAID)
- induced ulcers (NSAID examples include aspirin and ibuprofen).

Aphton's anti-GnRH product is similarly constructed. In this case, the synthetic
peptide  sequence in (a)  represents  the hormone GnRH,  which is targeted to be
neutralized. Neutralizing GnRH inhibits the production of estrogen, progesterone
and  testosterone.  Inhibiting  estrogen (and  progesterone)  is therapeutic for
women with breast cancer,  endometrial cancer, ovarian cancer and endometriosis.
Inhibiting testosterone is therapeutic for men with prostate cancer.

Aphton's  immunocontraceptive  product,  which prevents  pregnancy in humans, is
also similarly  constructed.  In this case, the so-called  "C-terminal"  peptide
portion of the hormone hCG (which is targeted to be neutralized) is synthesized.
A  second,  unique  epitope  (peptide),  located  on the  hormone  hCG,  is also
conjugated to the  immunogen,  which  enhances  efficacy.  By not using a larger
portion of the hCG molecule,  Aphton avoids inducing unwanted antibodies against
other hormones in the woman (LH and FSH), which share domains with some portions
of the hormone hCG. Pregnancy is prevented by immunizing the woman; this induces
antibodies which bind to and neutralize hCG.

                                      -13-
<PAGE>

                               Strategic Alliances

Aventis Pasteur

In February 1997, Aphton signed an agreement with Pasteur Merieux Connaught (now
called  Aventis  Pasteur),  for  a  strategic  alliance  for  all  human  cancer
applications    of    its    anti-gastrin    immunogen    product,     including
stomach/esophageal,  colorectal,  and pancreatic cancers. Under the terms of the
twenty-year agreement,  Aphton is responsible for product development,  clinical
trials and regulatory agency  approvals,  and Aventis Pasteur is responsible for
and will fund the promotion,  advertising,  marketing, distribution and sales of
Aphton's  anti-gastrin vaccine in North America and Europe. In addition,  Aphton
and Aventis  Pasteur have entered into  agreements  providing  for the supply of
certain  components  of the  anti-gastrin  immunogen  (as well as  other  Aphton
products) from Aventis Pasteur to Aphton.

In  addition  to  the  license  and  co-promotion  agreement,  we  entered  into
agreements  with Aventis  Pasteur  providing for the supply of the  anti-gastrin
immunogen  product  from us to  Aventis  Pasteur  for  distribution  and sale by
Aventis Pasteur pursuant to the license and co-promotion  agreement,  as well as
the supply of Diphtheria Toxoid and/or Tetanus Toxoid from Aventis Pasteur to us
for  use  in the  anti-gastrin  immunogen  product  (as  well  as  other  Aphton
products).   Aventis  Pasteur  will  fund  the  costs  associated  with  product
introduction,  promotion,  advertising  and marketing  throughout  the territory
covered by the  agreement.  Under the terms of the  agreement,  in  addition  to
upfront consideration  aggregating $10 million,  including $1 million cash and a
supply commitment (of Diphtheria Toxoid and/or Tetanus Toxoid suitable for human
use) of $9 million,  we will  receive the  majority of the profits from sales of
the  anti-gastrin  immunogen  product.  Diphtheria  Toxoid and/or Tetanus Toxoid
suitable for human use is not readily  obtained on the open market in such large
quantities as will be supplied to us as part of the upfront  consideration.  The
$10 million upfront  consideration  has been classified as a license payment and
has been deferred and will be recognized  for financial  statement  (accounting)
purposes as revenue within the twenty-year period of the agreement.  The revenue
recognition will begin once regulatory agency approval to market the product has
been  received and will be recognized  ratably over the remaining  period of the
contract,  which ends  February 13, 2017.  We do not  speculate on the timing of
regulatory approvals.

Either party may  terminate  the  agreement  for,  among other  things,  uncured
material  breach or certain events of bankruptcy or insolvency.  Aventis Pasteur
has the right to terminate  the  agreement,  following  completion  of Phase III
clinical  trials in the event that it  determines  that for safety and  efficacy
reasons it does not wish to co-promote, market or sell the product. In the event
that the agreement is terminated  due to a material  breach by Aventis  Pasteur,
all  rights of Aventis  Pasteur  granted by the  agreement  will be  terminated.
However,  Aventis  Pasteur's  obligations with regard to the $10 million upfront
consideration,  both  the  cash  and  our  rights  to the  full  $9  million  in
unconditional supply commitment,  survive termination of the agreement. There is
no provision under the agreement for the  unconditional  supply commitment to be
satisfied  by  Aventis  Pasteur  with a cash  payment.  In the  event  that  the
agreement is  terminated  due to a material  breach by us, we will,  among other
things,  grant Aventis  Pasteur a  co-exclusive  license,  under our patents and
know-how in North  America and Europe and the  product  trademarks,  to make and
sell the anti-gastrin  immunogen product in exchange for royalty payments to the
other party at a royalty rate based on a percentage of net sales.

On  December  20,  2002,  Aphton  signed a Letter of Intent to  restructure  its
co-promotion and marketing  collaboration with Aventis Pasteur.  Consummation of
the  transactions  contemplated  by the Letter of Intent was subject  to,  among
other  conditions to be determined  by the parties,  Aventis'  completion of due
diligence  to its  satisfaction,  approval of the  transaction  by Aventis'  and
Aphton's  respective  Board of  Directors,  and  negotiation  and  execution  of
definitive  agreements  for the  transaction  that were  mutually  agreeable  to
Aventis  and  Aphton.  The  transactions  contemplated  by the  Letter of Intent
include,  in part, the granting of exclusive worldwide rights to Aphton's active
immunization  targeting gastrin or its receptor(s),  including,  but not limited
to, G17DT, for all oncology indications, and also to monoclonal antibodies under
development by Aphton  targeting  gastrin or its  receptor(s),  for all oncology
indications.  Aphton would  receive an initial  payment  under the  restructured
agreement,  and would be entitled to receive  milestone  payments upon achieving
certain goals and royalties on sales.  Aventis would be responsible for the cost
of all preclinical,  clinical development and registration activities.  On March
31, 2003, Aphton announced that its Board of Directors determined that it is not
in the best  interests  of Aphton's  shareholders  to  restructure  the existing
Co-Promotion and Marketing Agreement with Aventis Pasteur to treat human cancers
with G17DT and that the

                                      -14-
<PAGE>

Letter of Intent  dated  December  20,  2002 was  allowed to expire.  Aphton and
Aventis Pasteur will continue  operating pursuant to the terms and conditions of
their existing Co-Promotion and Marketing Agreement.

GlaxoSmithKline

In June 1998,  Aphton and  GlaxoSmithKline  signed a  Collaboration  and License
agreement,  granting  GlaxoSmithKline  exclusive  rights  worldwide  to Aphton's
GnRH-related  patents  and  proprietary  technology.  The  agreement  covers the
diagnosis,  treatment and prevention of GnRH-related  cancers and other diseases
in humans.  Human cancer  indications  for the  anti-GnRH  product are prostate,
breast,  ovarian and endometrial cancer.  Additional medical indications for the
anti-GnRH  product are  endometriosis,  polycystic  ovaries,  uterine  fibroids,
contraception, infertility and precocious puberty. Under terms of the agreement,
Aphton and  GlaxoSmithKline  are  collaborating  in a joint product  development
program,  with  GlaxoSmithKline  responsible  for phase III clinical  trials and
regulatory  approvals,  and for worldwide marketing and distribution of approved
products.  The agreement uses a royalty  mechanism  based on product  sales,  in
dollars, worldwide to determine Aphton's revenues.

Under terms of the agreement,  we are collaborating  with  GlaxoSmithKline  in a
joint  product  development  program,   with  GlaxoSmithKline   responsible  for
worldwide  marketing and distribution of approved products.  Under the agreement
as amended, we are responsible for the initial cost of product development prior
to the  acceptance  of the  anti-GnRH  product  by  both  parties.  Our  product
development work is reviewed on an ongoing basis with  GlaxoSmithKline and after
the acceptance of the product by both parties for  development,  GlaxoSmithKline
is responsible for the funding of the development costs of the accepted product,
clinical trials and approvals for worldwide  marketing and distribution up to an
agreed amount.

As part of the agreement,  GlaxoSmithKline  made an equity investment in 1998 of
$5,000,000 for 237,867 shares of newly issued Aphton common stock.  Either party
may terminate the agreement for, among other things,  uncured material breach or
certain events of bankruptcy or insolvency.  Under the agreement as amended,  if
the  anti-GnRH  product has not been formally  accepted by both parties,  either
party may  terminate  the  agreement in 2002.  In 2002,  both parties  agreed to
continue  this  agreement.  Once the  product  has been  accepted  for  further
development,  GlaxoSmithKline  may only  terminate  the  agreement  for  safety,
efficacy or economical  reasons and Aphton may terminate for the reasons  stated
above. During the term of the agreement,  GlaxoSmithKline  will have full access
to all  matters  encompassed  within our patents  and  know-how  relating to the
anti-GnRH   product.   Upon   termination   or  expiration  of  the   agreement,
GlaxoSmithKline  will  cease  to have the  right  to use or sell  the  anti-GnRH
product, and all registrations and intellectual property rights in the anti-GnRH
product will be fully  transferred  to us. Until the  agreement is terminated or
otherwise  expires,  any invention or discovery made jointly by  GlaxoSmithKline
and us during the  development  program will be jointly  owned,  and the product
trademarks and any intellectual  property developed by  GlaxoSmithKline  will be
owned by them.

Schering-Plough Animal Health

In August 1997, we entered into a strategic alliance with Schering-Plough Animal
Health covering all animal health  applications of our  anti-gastrin  immunogen.
Schering-Plough,  in  terms  of  annual  sales,  is one of  the  largest  animal
healthcare  companies in the world.  Equine  (horse)  ulcers was selected as the
first  indication  to be  pursued  under  the  alliance.  Under the terms of the
ten-year agreement,  we have granted Schering-Plough an exclusive license in the
United States to promote, distribute and sell the anti-gastrin immunogen product
under our patents and know-how.

World Health Organization

In January  1995,  we  announced a  relationship  with WHO and another  research
party, for the development and testing of an immunocontraceptive  product (which
prevents   pregnancy),   under  which  we  received  exclusive  rights  for  the
manufacture,   distribution  and  supply  of  the  immunocontraceptive   product
worldwide,  for the term of the applicable patents on a patent-by-patent  basis.
In exchange for these rights,  we make payments to support  certain  research by
the research party.

In the event that a safe and effective product is developed,  we have undertaken
to WHO to  dedicate  a portion of our  production  capacity  for the  product to
produce and supply the product to public sector agencies in developing countries
only, according to a cost-related pricing structure.  Either party may terminate
the agreement for uncured

                                      -15-
<PAGE>

material  breach  by the  other  party.  In the event  that we have  ceased  and
continue  to cease to  perform  our  obligations  under  the  contract,  WHO may
terminate the agreement and we will grant WHO an exclusive, royalty-free license
to  our  technology  to  develop,  manufacture  and  supply  immunocontraceptive
products to public sector  agencies in developing  countries  only, as well as a
non-exclusive,  royalty-bearing  license  to  develop,  manufacture  and  supply
immunocontraceptive  products in developed  countries and to the private  sector
generally.   Once  the   immunocontraceptive   product  has  reached  a  certain
development stage and subject to certain consequences,  WHO may be released from
its obligations  under the agreement for lack of funds or after an assessment of
safety  and  efficacy  of the  product  and  Aphton  will be  released  from its
obligations.

                           Manufacturing and Marketing

Absent  or  together   with  a  strategic   alliance  or  corporate   partnering
relationship (such as those with Aventis Pasteur and GlaxoSmithKline)  which may
impact on the following, Aphton plans to commercialize its products by executing
long-term   contracts  with  third  parties,   including  major   pharmaceutical
companies,  to  manufacture  its products and by  contracting  with similar drug
companies to market, sell and distribute its products.

The contract  (outsourcing)  manufacturing  approach  leverages on the large and
available manufacturing  resources of pharmaceutical industry companies.  Aphton
has  contracted  with drug  manufacturing  sources which are providing  Aphton's
immunogens for toxicology studies and clinical trials.  Aphton's  outsourcing of
marketing,  distribution  and sales,  as exemplified by the Aventis  Pasteur and
GlaxoSmithKline agreements, similarly leverages on the large and effective sales
forces  of the  major  pharmaceutical  companies.  Aphton's  capital  formation,
personnel and plant and equipment requirements,  together with associated risks,
are clearly greatly reduced by such a commercialization  strategy,  which Aphton
pioneered.  In fact, the outsourcing of non-core  functions has now been adopted
by major drug companies.  This strategy  significantly enhances Aphton's ability
to achieve  rapid market  penetration  and growth and to exploit the benefits of
the patent life of its products.

                                    Strategy

Aphton's   product   development   and   commercialization    strategy   differs
significantly from the normal "licensing" of products to third parties. By using
this strategy, Aphton can retain a significantly larger degree of control of the
product  development  and  commercialization,  and a larger share of profits and
earnings,  if any,  resulting  therefrom.  Under typical licensing (with royalty
payments which are generally a small percentage of sales), the opposite would be
the case.  By avoiding the industry  norm of  "corporate  partnering"  with drug
companies  in its  earlier  development  stages,  and by  both  undertaking  and
overcoming the associated  risks during product  development,  Aphton has earned
and  retained   its  options  and  the  ability  to  optimally   carry  out  its
commercialization  approach.  This  strategy  was  successfully  validated  with
Aphton's agreements with Aventis Pasteur and GlaxoSmithKline.

                            Patents and Trade Secrets

Proprietary  protection  for  Aphton's  products  is  central  to the  Company's
business.  Aphton's  policy is to protect its technology by, among other things,
filing patent  applications in worldwide  markets of interest for products which
it considers  important and intends to market. In that regard,  Aphton has filed
patent applications and has continued to receive patents for its products,  both
domestic  and  foreign.  As of  December  31,  2002 we held 31  issued  patents.
Additional patent  applications are in preparation or being filed or are pending
in the US and in other countries.  Aphton intends to continue filing  additional
patent applications relating to its products and, when appropriate, improvements
in its technology and other specific products that it develops.

                                   Competition

The biotechnology and pharmaceutical industries are subject to rapid and intense
technological change. Our competitors include major pharmaceutical companies and
specialized   biotechnology   firms  supported  by  universities   and  research
institutions.  Our  current  competitive  position  with  respect to each of our
products is summarized in the following table.

                                      -16-
<PAGE>

<TABLE>
<CAPTION>
        Product           Indication(s)                                 Competition
        -------           ------------                                  -----------
<S>                       <C>                <C>
Anti-Gastrin 17 (G17DT)   Advanced           The only FDA-approved treatment currently available for pancreatic
for Gastrointestinal      pancreatic         cancer is Gemcitabine, which is manufactured by Eli Lily.  Our
Cancers                   cancers            anti-Gastrin 17 (G17DT) product is intended to be used as a non-toxic
                                             monotherapy, or as a  therapy administered with Gemcitabine.  We
                                             believe that Pharmacia & Upjohn, AstraZeneca and other pharmaceutical
                                             companies are also developing pancreatic cancer therapy.

Anti-Gastrin 17 (G17DT)   Advanced stomach   There is currently no FDA-approved drug available for gastric cancer
for Gastric and           cancer and/or      or gastro-esophageal cancer.  FDA-approved chemotherapies used to
Gastro-Esophageal         esophagus cancers  treat cancer in other indications, as well as experimental cancer
Cancers                                      drugs in clinical trials, are currently being tried on patients with
                                             advanced gastric cancer or gastro-esophageal cancer.  Roche
                                             Laboratories and Bristol-Myers Squibb, among others, are our
                                             competitors in this market.

GnRH Pharmaccine          Reproductive       There is currently no FDA-approved drug for advanced prostate cancer
                          system cancers     patients who have failed the GnRH agonists, Leuprolide or Goserelin.
                                             We believe several other pharmaceutical companies, including
                                             Pharmacia Upjohn, Immunex and AstraZeneca, are conducting clinical
                                             trials for this class of patients.

Anti-Gastrin 17 (G17DT)   Gastro-intestinal  Proton Pump Inhibitors are approved for treatment of GERD.  Unlike
for Gastro-Esophageal     ulcerations and    G17DT, none of the products currently available a) inhibits the
Reflux Disease (GERD)     GERD               effects of gastrin on the lower esophageal sphincter causing abnormal
                                             transient LES relaxations typically associated with GERD, which are
                                             believed to contribute heavily to the inadequate symptomatic relief
                                             of current drugs, or b) treats hyper-gastrinemia, which results from
                                             standard of care therapy using Proton Pump Inhibitors (PPIs).

Immuno- Contraception     Prevent            The use of a contraceptive vaccine eliminates patient compliance
                          pregnancy in       problems that are inherent with oral medications and intrusive
                          humans             devices made by our competitors in the current birth control market.

</TABLE>

Our  competitive  position  depends on the safety and efficacy of products,  the
timing of regulatory approval and commercial introduction, and the effectiveness
of marketing and sales efforts.  Our success also depends on our ability to form
strategic  alliance  relationships  with other companies with greater  marketing
resources  than  ours,  attract  and  retain  qualified  personnel,  and  secure
sufficient   capital  resources  for  the  often   substantial   period  between
technological conception and commercial sales.

Some of our competitors have far greater  financial  resources,  larger research
staffs and more extensive  physical  facilities.  These  competitors may develop
products that are more effective than ours and may be more successful than us at
producing  and  marketing  their  products.   In  addition,   many   specialized
biotechnology firms have formed collaborations with large, established companies
to support the research,  development and commercialization of products that may
be competitive with ours.

                                      -17-
<PAGE>

                                   Regulation

Government   regulation  in  the  United  States  and  foreign  countries  is  a
significant  factor in the development and marketing of all of Aphton's products
and in Aphton's  ongoing research and development  activities.  Clinical trials,
manufacture and marketing of Aphton's products are expected to undergo extensive
testing and  approval  processes by the Food and Drug  Administration  (FDA) and
equivalent  foreign  regulatory  authorities,  including  those of the  European
Union.

Aphton conducts human clinical trials with the objective of obtaining regulatory
approvals in the key markets,  worldwide. The regulatory requirements and status
of each of our products are summarized in the following table.

<table>
<caption>
         Product              Trial Stage      Regulatory Requirements                Regulatory Status
         -------              -----------      -----------------------                -----------------
<S>                        <C>                <C>                         <C>

Anti-Gastrin 17 (G17DT)    Clinical Trials-   FDA, EU, Australia,         Amended Investigational New Drug
for Gastrointestinal       Phase III          Canada, Japan and other     application (IND) filed with FDA and
Cancers                                       countries' approvals.       European countries; received permission
                                                                          to proceed with clinical trials in the
                                                                          US and in Europe.

Anti-Gastrin 17 for        Clinical Trial-    FDA,EU, Japan  and other    Investigational New Drug application
Gastric and                Phase II           countries' approvals.       (IND) filed with FDA and European
Gastro-Esophageal                                                         countries; received permission to
Cancers                                                                   proceed with clinical trials in the US
                                                                          and in Europe.

GnRH Pharmaccine           Clinical Trial-    FDA, MCA and other          Investigational New Drug application
                           Phase II           countries' approvals.       (IND) filed with FDA; received
                                                                          permission to proceed with clinical
                                                                          trials in the US and Europe.

Anti-Gastrin 17            Clinical Trial-    FDA, MCA/EU and other       Amended Investigational New Drug
(G17DT) for                Phase II           countries' approvals.       application (IND) filed in Europe;
Gastro-esophageal Reflux                                                  received permission to proceed with
Disease (GERD)                                                            clinical trial.

Immuno-Contraception       Clinical Trial-    FDA, MCA and other          Investigational New Drug application
                           Phase II           countries' approvals.       (IND) filed in Europe; received
                                                                          permission to proceed with clinical
                                                                          trial.
</table>

                                      -18-
<PAGE>

                        Directors and Executive Officers

The directors and executive officers of the Company are set forth below:

Name:                                                  Position(s):
-----                                                  ------------

Philip C. Gevas                        Chairman of the Board of Directors,
                                        President and Chief Executive Officer
William A. Hasler                      Vice Chairman of the Board, Director
                                        and Co-Chief Executive Officer
Robert S. Basso                        Chairman of Compensation and Audit
                                        Committees and Director
Georges Hibon                          Director
Nicholas John Stathis, Esq.            Director
Frederick W. Jacobs                    Vice President,  Chief Financial
                                        Officer,  Treasurer and Chief Accounting
                                        Officer

Philip C. Gevas - 69,  Chairman of the Board of  Directors,  President and Chief
Executive  Officer.  Mr.  Gevas has  served  as  Director,  President  and Chief
Executive  Officer since  co-founding  Aphton in 1981.  Mr. Gevas  conceived and
directed the development of Aphton's  inventions which have resulted in numerous
patents  for  Aphton  for  the  treatment  of  colorectal,   pancreatic,  liver,
esophageal  and stomach  cancers,  and GERD.  After serving as an officer in the
United States Air Force,  Mr. Gevas had  experience  in the defense  industry in
management, science and engineering. Mr. Gevas has the degrees of M.E., and M.S.
Mathematics   (Stevens  Institute  of  Technology)  and  M.S.E.E.   (Ohio  State
University).

William A.  Hasler - 61,  Vice  Chairman  of the Board,  Director  and  Co-Chief
Executive Officer.  Mr. Hasler has served as Director of the Company since 1991.
Mr. Hasler's expertise and experience in management are focused both on strategy
and in  operations,  in the  execution  of  plans  and  programs.  Prior  to his
appointment as Aphton's Co-Chief  Executive Officer in July 1998, Mr. Hasler was
Dean of both the  Graduate  School and  Undergraduate  School of Business at the
University of California, Berkeley for more than five years. Earlier, Mr. Hasler
was Vice Chairman of KPMG Peat Marwick,  responsible  for management  consulting
worldwide.  He is currently also the  Chairman and director of Solectron  Corp.,
director of Stratex Networks and Ditech Communications, trustee of Schwab Funds,
and public governor of the Pacific Exchange.

Robert S. Basso - 58, Director. Mr. Basso has served as director since 1984. Mr.
Basso has served as Chairman of Correspondent  Services Corporation (CSC) and as
Managing  Director of UBS PaineWebber Inc. for more than ten years.  Previously,
Mr. Basso was President of Broadcort  Capital  Corporation and Managing Director
of Merrill Lynch, Pierce, Fenner & Smith.

Georges Hibon - 65, Director.  Mr. Hibon has served as directors since 2001. For
the past ten years, Mr. Hibon has served as Chairman and Chief Executive Officer
of  Pasteur  Merieux  Connaught,  NA and a member  of its  Board  of  Directors.
Previously,  Mr. Hibon was  President  of Merck  France.  The French  Government
awarded Mr. Hibon the honor of "Chevalier de la Legion  d'Honor" for outstanding
military and civilian accomplishments.

Nicholas John Stathis,  Esq. - 79, Director.  Mr. Stathis has served as director
since 1994.  Previously,  Mr.  Stathis served counsel at White & Case LLP, was a
partner at Botein, Hays & Sklar; Watson,  Leavenworth,  Kelton & Taggart; and at
Hopgood,  Calimafde,  Kalil,  Blaustein & Judlowe.  Mr. Stathis practiced in all
phases of patent, trademark, copyright and unfair competition law.

                                      -19-
<PAGE>

Frederick W. Jacobs - 47, Vice President, Chief Financial Officer, Treasurer and
Chief  Accounting  Officer.   Mr.  Jacobs  has  been  with  Aphton  since  1989.
Previously, Mr. Jacobs, a CPA, was Chief Financial Officer of BestCare, a Health
Maintenance  Organization  from 1986 to 1989 and before that served on the staff
of  PricewaterhouseCoopers  (then  Coopers &  Lybrand)  providing  audit and tax
services.

Aphton's Bylaws  authorize the Board of Directors to fix the number of directors
from time to time by a vote of the  majority  of the entire  Board of  Directors
(including  any  vacancies).  All  directors  currently  hold office until their
successors  have been  elected.  Officers  are elected to serve,  subject to the
discretion  of the Board of Directors,  until their  successors  are  appointed.
Directors  do not receive any fees for service on the Board.  Board  members are
reimbursed  for their  expenses for each meeting  attended.  There are no family
relationships among executive officers or directors of Aphton.

Aphton's Audit Committee is composed of Messrs.  Basso,  Hibon and Stathis.  The
Compensation Committee is composed of Messrs. Basso and Stathis.  Messrs. Basso,
Hibon and Stathis are non-executive Board Members.

                          Principal Scientific Officers

In addition to Aphton's executive  officers Philip C. Gevas,  William A. Hasler,
Aphton's principal scientific officers are:

Paul Broome, MB., Ch.B., MFPM (University of Sheffield Medical School, UK) - 53,
Vice President and Medical Director for Clinical Trials and Regulatory  Affairs,
Europe - Asia. Dr Broome has been with Aphton since 1994.  His years of clinical
experience  includes  the  responsibility  at Glaxo for  clinical  trials  which
provided data for US (FDA) and the United Kingdom Medicines Control Agency (MCA)
registration of the indication for ranitidine  (Zantac) as maintenance  therapy,
which became the world's  largest-selling  drug.  Later,  Dr. Broome was Medical
Director of a leading  company in the United  kingdom  which  provides  services
ranging from consulting and R&D through clinical trials,  regulatory affairs and
the  registration  of drugs for marketing  approval from  government  regulatory
agencies.

William D. Perkins, Ph.D. - 65, Vice President, Director for Clinical Trials and
Regulatory Affairs,  North America. Prior to joining Aphton Corporation in 2000,
Dr. Perkins had years of experience in the medical  field.  He has been actively
involved in oncology/immunology  clinical trials, including directing all phases
of clinical  trial  development,  from Phase I through  post-marketing  approval
(Phase IV). Dr.  Perkins has been a major  contributor  to the  formulation  and
writing  of both  investigational  new drug (IND)  applications  and of new drug
application  (NDA)   submissions  to  the  FDA.  Previous  senior   professional
responsibilities  in clinical trials and medical  affairs  include  affiliations
with ILEX Oncology (NASDAQ: ILXO), Elan Corporation PLC (NYSE: ELN) and Novartis
(NYSE: NVS).

Richard Ascione, Ph.D. (Princeton University) - 65, Vice President,  Director of
Aphton's  Laboratory  of Molecular  Medicine.  Dr.  Ascione has been with Aphton
since 1994. Dr. Ascione  directs R&D in the area of Molecular  Biology and works
closely  with  Aphton's  Laboratory  of  Immunobiology  in research  and product
development.  Previously,  Dr.  Ascione was a  professor  in the  Department  of
Experimental  Oncology and  Associate  Director of the Center for  Molecular and
Structural  Biology at the Hollings Cancer Center and the Medical  University of
South  Carolina,  respectively,  in Charleston,  South  Carolina.  Earlier,  Dr.
Ascione was with the National Cancer Institute (NCI) of the National  Institutes
of  Health  (NIH),  where he  served  as  Deputy  Chief of NCI's  Laboratory  of
Molecular  Oncology.  Dr.  Ascione has published over  sixty-five  peer-reviewed
papers,  several book chapters and articles related to the molecular biology and
gene regulation of cancer, human retroviruses and HIV/AIDS.

Theo  de  Roij,  Ph.D.,  D.V.M.  - 53,  Vice  President,  Business  and  Product
Development.  Prior to joining  Aphton in 1998, Dr. de Roij served for more than
one year as Director  of Business  Development  at  GlaxoSmithKline  Biologicals
S.A., responsible for its worldwide business development activities. Previously,
Dr. de Roij was employed by the Animal Health Division of Solvay, S.A., where he
held several senior positions,  including  responsibility for worldwide business
development and strategic planning.

                                      -20-
<PAGE>

Peter  Blackburn,   Ph.D.  -  53,  Vice  President,   Program   Development  and
Manufacturing.  Dr. Blackburn has been with Aphton since 1997.  Previously,  Dr.
Blackburn was Executive  Vice President and Chief  Operating  Officer of Applied
Microbiology,  Inc.  Earlier,  he was  involved in academic  research in protein
chemistry at Rockefeller University,  New York, working in the laboratory of two
recipients  of the Nobel  Prize  for  Chemistry.  Dr.  Blackburn  has  published
numerous papers in peer-reviewed journals and is the inventor on numerous US and
foreign patents.

Dov Michaeli, M.D. (University of California, San Francisco),  Ph.D. (University
of  California,  Berkeley)  - 67,  Senior  Vice  President,  Director of Medical
Science and Chief Medical Officer. Dr. Michaeli has been with Aphton since 1989.
Dr.  Michaeli is a senior  member of  Aphton's  management  team with  extensive
experience  in  clinical  medicine  and  scientific  research.  Previously,  Dr.
Michaeli  was a  professor  at  the  University  of  California,  San  Francisco
(Departments  of  Biochemistry  and Surgery) for twenty years.  Dr. Michaeli has
numerous patents and over fifty published articles and book chapters.

                       Administrative and Scientific Staff

Donald   Henderson  -  Vice  President  and  Managing   Director,   Finance  and
Administration,  Europe. Previously, Mr. Henderson, a chartered accountant, held
financial management positions at a number of pharmaceutical companies.

Jeannette L. Whitmore - Vice President,  Director, Investor and Media Relations,
Corporate  Communications.  Previously,  Ms. Whitmore held positions in business
administration in the medical and healthcare fields.

Stephen L. Karr, Jr., Ph.D.,  University of California,  Davis,  Dr. Karr joined
the Company  soon after its  founding in 1981 and serves as Vice  President  and
General  Manager of the Laboratory of  Immunobiology.  He is responsible for the
Laboratory's  daily  operations,   including  program  planning,  budgeting  and
control. As Project Manager, Dr. Karr is responsible for the experimental design
and   implementation   of  special   projects.   Dr.   Karr,   who  is  also  an
immunoparasitologist,  is an inventor of numerous Aphton  patents.  Dr. Karr has
sixteen  publications  and had  presented  twenty  papers  prior to joining  the
Company.

Stephen  Grimes,  Ph.D.,  University  of  California  -  Vice  President  of the
Laboratory  of  Immunology.  Dr.  Grimes  joined  Aphton  immediately  after its
founding and is responsible  for research and  development in immunology and for
the experimental design and implementation of immunology-based projects. He also
serves as the principal  scientific  deputy for Aphton's  clinical  trials.  Dr.
Grimes is a co-inventor of numerous issued patents of the Company and additional
patents in preparation and pending.  Dr. Grimes joined Aphton upon finishing his
doctoral dissertation at the University of California, Davis.

None of our directors or officers is involved, or has ever been involved, in any
litigation,  administrative  or  governmental  proceeding in the past five years
that are material to an evaluation of their ability and their integrity.  Aphton
has 56 employees, of which 48 work primarily in Research and Development.

                            Scientific Advisory Board

The members of Aphton's  Scientific Advisory Board, which functions primarily as
a review board for research projects and for product  development  programs,  in
addition to its senior staff members, are:

     Robert J.  Scibienski,  Ph.D.,  University of  California,  Los Angeles.  A
     co-founder of Aphton,  Dr. Scibienski focuses on  immunology-related  basic
     technology  at  Aphton,  currently  addressing  immune  system  regulation,
     antigen presentation and gene interactions. Dr. Scibienski is a co-inventor
     of issued Aphton patents and a number of patent applications of Aphton. Dr.
     Scibienski is Associate  Professor,  Department of Medical Microbiology and
     Immunology and Director of the campus-wide  Central  Hybridoma  Facility at
     the  University  of  California,  Davis.  Dr.  Scibienski  has over  thirty
     publications.

     Demosthenes  Pappagianis,   M.D.  (Stanford  School  of  Medicine),   Ph.D.
     (University  of  California,   Berkeley).   A  co-founder  of  Aphton,  Dr.
     Pappagianis  is its  principal  resource on the  mechanisms of infection of
     pathogens and of host defenses.  Professor and Chairman  (1967-1985) in the
     Department of Medical  Microbiology  and  Immunology  at the  University of
     California,  Davis,  Dr.  Pappagianis is widely  recognized in the field of
     infectious  diseases.  He is a Diplomate of the  National  Board of Medical
     Examiners and Diplomate of the

                                      -21-
<PAGE>

     American Board of Medical Microbiology.  In addition, he is a Fellow of the
     Infectious Diseases Society of America and an Associate Member of the Armed
     Forces   Epidemiological  Board.  Dr.  Pappagianis  has  over  one  hundred
     publications.

     Vernon C. Stevens,  Ph.D.  Professor of  Reproductive  Biology,  Ohio State
     University.  Dr. Stevens is recognized  worldwide as one of the pre-eminent
     authorities  on  vaccines,   contraception   and  synthetic  peptide  based
     immunogen  formulations.  He pioneered the development of synthetic peptide
     immunogens  for human use,  particularly  for Aphton's  immunocontraceptive
     product, which prevents pregnancy,  under development with the World Health
     Organization (WHO).

     Richard L. Littenberg,  M.D. A co-founder of Aphton,  Dr.  Littenberg is an
     emeritus member of Aphton's  Scientific Advisory Board and is a co-inventor
     of three Aphton patent filings.  Dr.  Littenberg is Board Certified in both
     Internal  Medicine  and Nuclear  Medicine  and a Diplomate  of the National
     Board of Medical  Examiners and is President and Chief Executive Officer of
     HMG. Dr.  Littenberg  received his M.D. degree from the State University of
     New York.  He has practiced  internal and nuclear  medicine for over twenty
     years.  He has  participated  in clinical  trials for major  pharmaceutical
     companies and has engaged in  gastrointestinal,  cancer and  cardiovascular
     research.

     Eliezer Benjamini, Ph.D., University of California,  Berkeley. A co-founder
     of Aphton,  Dr. Benjamini is an emeritus member of the Scientific  Advisory
     Board and is a co-inventor of two Aphton patents.  Dr. Benjamini retired as
     a full Professor in the Department of Medical  Microbiology  and Immunology
     at the  University  of  California,  Davis,  where  he holds  the  title of
     Professor  Emeritus.  Dr.  Benjamini is widely  recognized  in the field of
     immunology.  He has received  awards from industry and academia,  including
     the Distinguished  Scientists Award in Virology and Immunology (1984) which
     was given for his pioneering work in the  development of synthetic  peptide
     vaccines. Dr. Benjamini has over one hundred publications and is co-author,
     with Dr. Sidney  Leskowitz,  of Immunology:  A Short Course, a textbook for
     medical students.

     Other scientists  (consultants)  participate when their expertise is needed
     on a specific project.

                                      -22-
<PAGE>

                           Glossary of Selected Terms

                        Adenocarcinoma: cancer that originates in glandular
                                        epithelial cells that line certain
                                        internal organs.

                    Adjuvant Treatment: an ancillary treatment that is given to
                                        patients in addition to a primary
                                        treatment to enhance the effectiveness
                                        of the primary treatment. For example,
                                        in colon cancer, chemotherapy often is
                                        given as an adjuvant treatment following
                                        surgery to remove the primary cancer
                                        from the colon.

                              Antibody: a protein produced by certain white
                                        blood cells as part of an immune
                                        response.  These proteins, called
                                        antibodies, bind in a specific manner to
                                        a separate molecule and neutralize or
                                        inhibit its biological activity.

                               Antigen: any substance that can induce antibodies
                                        (B-cells) or activate T-cells, which
                                        bind to it.

                        Cancer Vaccine: technically a misnomer: a large
                                        weakly-antigenic molecule derived from
                                        the surface of cancer cells, which when
                                        combined with a foreign molecule (e.g.,
                                        virus) induces a stronger immune
                                        response against it and, then, where
                                        located on the surface of the cancer
                                        cells.

                         Control Group: the patient group (or arm) of a clinical
                                        trial that receives the placebo or a
                                        standard treatment for a disease,
                                        against which the experimental drug is
                                        compared.

                               Gastrin: a hormone produced in the stomach that
                                        regulates stomach acid secretion and
                                        stimulates the proliferation of
                                        gastrointestinal cells and
                                        adenocarcinomas of the gastrointestinal
                                        tract.  It occurs in the body in several
                                        forms, including gastrin 17 (a 17 amino
                                        acid peptide) and gastrin 34 (a 34 amino
                                        acid peptide).

 Gonadotropin Releasing Hormone (GnRH): a hormone secreted in the hypothalmus
                                        that stimulates the release of other
                                        reproductive hormones (including
                                        ultimately, testosterone, estrogen and
                                        progesterone).

                               Hapten:  a small molecule (peptide), not
                                        antigenic by itself, that can be bound
                                        to by antibodies. It can be made
                                        antigenic and elicit such antibodies
                                        when joined to a foreign molecule
                                        (carrier).

                               Hormone: a chemical substance produced by an
                                        organ or cells of an organ in one part
                                        of the body, and carried in the blood to
                                        another organ or part of the body; and
                                        which has a specific regulatory effect
                                        on the activity of the body including
                                        growth, metabolism and reproduction.

    human Chorionic Gonadotropin (hCG): a female hormone secreted by a
                                        fertilized egg necessary to start
                                        pregnancy.

                         Immune System: the complex group of organs and cells
                                        which has the ability to fight infection
                                        and disease.

                             Immunogen: any molecule capable of inducing the
                                        immune system to produce an antibody
                                        response against it.

                            Metastasis: a process by which cancer cells spread
                                        from the primary tumor to distant sites
                                        such as the lung, liver, bone, or
                                        brain.  A cancer that has spread is said
                                        to be metastatic, and the distant tumors
                                        are called metastases.

                               Peptide: a molecule composed of amino acids that
                                        are linked to each other in a sequence.

                               Placebo: an inert non-drug substance that is
                                        given to the control group for
                                        comparison to a new experimental drug,
                                        usually in a randomized clinical trial.

             Randomized Clinical Trial: a clinical trial with at least two arms,
                                        in which the decision as to which arm a
                                        new patient is assigned is, by design,
                                        made by chance.

                    Standard Treatment: a currently accepted treatment for a
                                        given disease. The drug treatment often
                                        given to one group (or arm) of patients
                                        in a clinical trial. The standard
                                        treatment can serve as the control arm,
                                        in place of a placebo, for comparison to
                                        a new experimental drug treatment.

                       Treatment Group: the patient group, or arm, of a clinical
                                        trial that receives the new experimental
                                        drug treatment.

                               Vaccine: an immunogen consisting of an attenuated
                                        or killed microorganism, administered to
                                        induce the immune system to produce
                                        antibodies to fight an infectious
                                        disease.

                        Vaccine - Like: an immunogen consisting of a synthetic
                                        hapten (peptide) joined together with a
                                        foreign molecule, administered to induce
                                        the immune system to produce antibodies
                                        against the peptide.

                                      -23-
<PAGE>

Item 2.  Properties

We do not own any real property.  We presently  lease  research and  development
facilities  in Yolo County,  California  and in  Leicestershire  County,  United
Kingdom. We lease our corporate  headquarters in Miami, Florida. We believe that
these  facilities are suitable for our operations  for the  foreseeable  future.
These leases expire at various dates through  December 31, 2007.  Rental expense
for  these  leases  for the year  ended  December  31,  2002  was  approximately
$151,992,  for the eleven month period ended December 31, 2001 was approximately
$73,000 and for the year ended January 31, 2001 was approximately  $103,000. The
minimum rental commitment for the year ending December 31, 2003 is $153,000, for
the year ended  December 31,  2004,  $140,000,  for the year ended  December 31,
2005, $56,000, for the year ended December 31, 2006, $57,000, for the year ended
December 31,  2007,  $34,000 and none  thereafter.  The leases  provide  various
options to renew,  but we may or may not choose to renew any of the  leases.  We
may or may not  relocate  one or  more  of our  facilities  based  on  strategic
planning.

Item 3.  Legal Proceedings

We  are  not  involved,  and  have  never  been  involved,  in  any  litigation,
administrative or governmental proceeding and none is believed by our management
to be threatened.

Item 4.  Submission of Matters to a Vote of Security Holders.

Not applicable.

                                      -24-
<PAGE>

                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

The common stock of Aphton has been trading on Nasdaq's  National  Market System
since  June 2,  1994.  Aphton had been  traded in the  Nasdaq  Small-Cap  Issues
(formerly  over-the-counter)  market  since April 1, 1991,  the date of Aphton's
initial  public  offering.  The  following  table  sets forth high and low price
information,  provided by Nasdaq Historical Research  Department,  for each full
quarter beginning after December 31, 2001. Aphton's common stock is traded under
the symbol "APHT."

For The Year Ended December 31, 2001:           High                       Low
         1st  Quarter                          $25.75                    $12.13
         2nd Quarter                           $24.82                    $14.40
         3rd Quarter                           $21.98                    $ 6.95
         4th Quarter                           $18.60                    $ 9.01
For The Year Ended December 31, 2002:
         1st  Quarter                          $16.00                     $9.60
         2nd Quarter                           $12.00                     $6.08
         3rd Quarter                            $7.58                     $2.16
         4th Quarter                            $4.34                     $1.28

We have never paid any cash dividends on our common stock. Although there are no
restrictions  that currently limit our ability to pay cash dividends,  we intend
to retain all future earnings,  if any, until we generate sufficient revenues to
allow for the payment of dividends.  We do not expect to pay any cash  dividends
in the foreseeable future.

In August 2001, we closed a $14,250,036 million financing of unregistered equity
securities with several institutional  investors.  Aphton sold 1,187,503 million
shares of common  stock at $12.00  per share.  These  shares  were  subsequently
registered in September 2001. The purchase agreement relating to the August 2001
transaction contained an anti-dilution  provision that would be triggered in the
event that  shares of common  stock are  issued  below  $12.00 per share  before
October 2001.

On February 7, 2002,  Aphton sold 1,345,000 shares of registered common stock at
$12.70 per share and received gross proceeds of $17.1 million.

On March 21, 2002,  Aphton sold 1,200,000  shares of registered  common stock at
$10.50 per share and  received  gross  proceeds  of $12.6  million.  Because the
shares of common  stock were issued below  $12.00 per share,  the  anti-dilution
provision contained in the August 2001 purchase agreement was triggered and as a
result, on April 9, 2002, we issued 169,643  unregistered shares of common stock
to certain of our investors.

On September 26, 2002,  Aphton sold 2,500,000 shares of registered  common stock
at $2.00 per share and received gross proceeds of $5 million.

On December 6, 2002,  Aphton sold 1,520,000 shares of registered common stock at
$2.375 per share and received gross proceeds of approximately $3.6 million.

Subsequent  to year end,  on  February  24,  2003,  we sold to an  institutional
investor 500,000 shares of registered common stock at $2.96 per shares receiving
gross proceeds of approximately $1.48 million and 150,000 unregistered  warrants
in a private placement at $0.125 per warrant for gross proceeds of $18,750. Each
warrant has  registration  rights and entitles the holder  thereof to purchase a
share of our common stock at a price of $2.96 per share for the next five years.

As of December 31, 2002, Aphton had approximately 300 shareholders of record and
approximately 5,000 beneficial holders of its common stock.

                                      -25-
<PAGE>

Item 6.  Selected Financial Data

                         SELECTED FINANCIAL INFORMATION

The selected financial data set forth below with respect to Aphton's  statements
of operations and balance  sheets for the year ended  December 31, 2002,  eleven
months ended December 31, 2001, the years ended January 31, 2001,  2000 and 1999
and the nine months ended  January 31, 1998 are derived  from audited  financial
statements and should be read together with the financial statements and related
notes  included in this  Annual  Report.  All  selected  financial  data are not
covered by the independent  accountants' report. The data presented below should
be read  together  with the  financial  statements,  related  notes,  and  other
financial information included herein.

<table>
<caption>
Statement of Operations Data:                      Eleven Months                                                     Nine Months
(In thousands,                    Year Ended          Ended                                                             Ended
except per share data)           December 31,       December 31,               Year Ended January 31,                 January 31,
                                     2002             2001             2001            2000            1999              1998
                                     ----             ----             ----            ----            ----              ----
<S>                                <C>              <C>               <C>             <C>              <C>             <C>
Research & development
     expenditures                  $ 37,682        $ 28,676          $ 15,302        $ 10,821        $ 9,454           $ 4,963
Net loss                           $(39,990)       $(31,264)         $(16,397)       $(11,193)       $(9,757)          $(6,605)
Net loss per share                 $  (1.93)       $ (1.87)          $  (1.02)       $  (0.76)       $ (0.68)          $ (0.48)
Weighted average shares
     outstanding                      20,748          16,739           16,100          14,731         14,431            13,733

Balance Sheet Data:                       December 31,                                       January 31,
                                     2002             2001             2001            2000            1999              1998
                                     ----             ----             ----            ----            ----              ----
Cash and current
     investments                   $   7,824        $   6,323        $ 18,664        $ 19,179        $ 10,555          $ 14,226
Total assets                       $  15,991        $  13,983        $ 27,364        $ 28,192        $ 19,891          $ 23,580
Total liabilities                  $  27,317        $  20,715        $ 16,208        $ 16,132        $ 13,339          $ 12,273
Accumulated deficit                $(140,605)       $(100,615)       $(69,351)       $(52,954)       $(41,760)         $(32,004)
Total stockholders' (deficit)
equity                             $ (11,326)       $  (6,733)       $ 11,157        $ 12,060        $  6,552          $ 11,307
</table>

In 1998,  we changed  our fiscal  year-end  from April 30 to January  31. In May
2000, we changed  accountants from  PricewaterhouseCoopers  LLP to Ernst & Young
LLP. The change is discussed in Item 9 of this Report. In March 2001, we changed
our fiscal year-end from January 31 to December 31.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations

                              Results of Operations

Year Ended December 31, 2002, Eleven Months Ended December 31, 2001 and the Year
Ended January 31, 2001

During  the  year  ended  December  31,  2002,  the we  reported  a net  loss of
$39,990,001.  During  this period we had no contract  revenues.  The  investment
earnings on cash and current  investments  for the year ended  December 31, 2002
was $114,539 compared to $393,768 for the eleven months ended December 31, 2001.
This  significant  decrease was due to lower  average cash balances and interest
rates. Total research and development  expenditures  increased $9,155,874 in the
year ended  December 31, 2002 over the eleven  months  ended  December 31, 2001.
This 32% increase was a result of an additional month in the year ended December
31, 2002 and the increased  clinical trial costs associated with the development
of our products. Research and development expenses were reduced by

                                      -26-
<PAGE>

approximately  $150,000.  This reduction  corresponds  with an adjustment of the
same amount for  unrealized  loss on  investment  securities.  We allow  certain
employees to defer a portion of  compensation,  and we transfer this amount into
an  investment  account that the employee  then  directs the  investment  of the
funds. The related investment  securities are held by us, and are subject to our
the general  creditors.  These employees direct the investment of the funds, and
the changes in value in these investments are recognized as unrealized gains and
losses in the statement of operations with a corresponding  increase or decrease
to the  carrying  value of the  investment  account.  The same amount is used to
adjust  research and  development  expense and the  corresponding  liability for
employees'  wages and benefits  payable.  Unrealized  holding  losses on trading
securities and the  corresponding  decrease in research and development  expense
totaled   approximately   $150,000  for  the  year  ended   December  31,  2002,
approximately  $660,000 in the eleven month period ending  December 31, 2001 and
approximately $990,000 for the year ended January 31, 2001.

During the eleven  months ended  December  31,  2001,  we reported a net loss of
$31,264,455.  During  this period we had no contract  revenues.  The  investment
earnings on cash and current  investments  for the eleven months ended  December
31, 2001 was  $393,768,  compared to  $1,554,661  for the year ended January 31,
2001.  This  significant  decrease was due to lower  average  cash  balances and
interest   rates.   Total  research  and  development   expenditures   increased
$13,374,272  in the eleven  months  ended  December 31, 2001 over the year ended
January 31, 2001. This 87% increase was a result of the increased clinical trial
costs associated with the development of our products.

We do not accumulate cost information by major development  product.  Many costs
are  applicable  to more than one product.  We receive  reimbursements  from our
strategic  partners for some of our research and development  expenses and these
expenses are not included in our costs. We estimate that 93% of our research and
development costs are spent on gastrointestinal and reproductive system cancers.
There are no payment or penalty milestones  associated with any of the projects,
all of which are in Phase II or III clinical trials.  We do not speculate on the
timing of approvals by regulatory authorities.

During the year ended January 31, 2001,  we reported a net loss of  $16,397,139.
During this period we had no contract revenues.  The investment earnings on cash
and current investments for the year was $1,554,611.  This significant  increase
was  due to  higher  average  cash  balances.  Total  research  and  development
expenditures  increased by $4,480,822 to  $15,302,183.  Research and development
cash  expenditures  were  approximately  $5,468,000  greater  in the year  ended
January 31, 2001 than in the year ended  January 31, 2000 but were offset by the
approximately  $990,000 decrease  described above. This increase was a result of
the  increased  clinical  trial costs  associated  with the  development  of our
products.

Recent Accounting Pronouncements

In June 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
143,  "Accounting for Asset Retirement  Obligations,"  which addresses financial
accounting  and  reporting for  obligations  associated  with the  retirement of
tangible  long-lived  assets and the associated  asset  retirement  costs.  This
statement is effective for Aphton beginning January 1, 2003. Management does not
expect  that  adoption  of this  standard  will  have a  material  impact on the
Company's financial statements.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
This  statement  eliminates  the  required  classification  of  gain  or loss on
extinguishment  of debt as an extraordinary  item of income and states that such
gain or loss be evaluated for extraordinary classification under the criteria of
Accounting  Principles Board Opinion No. 30, "Reporting  Results of Operations."
This  statement  also  requires  sale-leaseback  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions,   and  makes  various  other  technical  corrections  to  existing
pronouncements. Aphton is required to implement SFAS No. 145 on January 1, 2003.
Aphton  does not expect  this  statement  to have a material  impact on Aphton's
consolidated financial position or results of operations.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal Activities." This statement nullifies Emerging Issues Task
Force  (EITF)  Issue No.  94-3,  "Liability  Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a  Restructuring)."  This statement  requires that a liability
for a cost associated  with an exit or disposal  activity be recognized when the
liability is incurred rather than the date of an entity's  commitment to an exit
plan.  Aphton is

                                      -27-
<PAGE>

required  to  implement  SFAS No. 146 on January 1, 2003 for  transactions  that
occur after  December 31, 2002.  Aphton does not expect this statement to have a
material impact on the Company's  consolidated  financial position or results of
operations.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation--Transition  and  Disclosure,  an amendment of FASB  Statement  No.
123."  SFAS  No.  148  amends  SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation,"  to provide  alternative  methods of  transition  for a voluntary
change to the fair value based method of  accounting  for  stock-based  employee
compensation.  In addition,  SFAS No. 148 amends the disclosure  requirements of
SFAS No.  123 to  require  prominent  disclosures  in both  annual  and  interim
financial  statements  about the method of accounting for  stock-based  employee
compensation and the effect of the method used on reported results. SFAS No. 148
is effective  for fiscal  years and interim  periods  ending after  December 15,
2002.  SFAS No. 148 does not amend SFAS 123 to require  companies to account for
employee  stock  options  using  the  fair  value  method.  Aphton  adopted  the
disclosure provisions required under SFAS No. 148 effective December 31, 2002.

                                      -28-
<PAGE>

                         Liquidity and Capital Resources

We finance our operations through the sale of our equity securities, convertible
debentures  and  licensing  fees.  These funds  provide us with the resources to
operate our business,  attract and retain key personnel  and  scientific  staff,
fund our research and  development  program,  pre-clinical  testing and clinical
trials, obtain the necessary regulatory approvals and develop our technology and
products.

Liquidity

During the year ended  January 31, 2001,  Aphton  received net proceeds of $15.5
million  from the  closing of a private  financing  with  several  international
biotechnology/healthcare funds. Aphton issued 491,509 shares of common stock.

In August 2001, we sold  approximately  1,187,503 shares of unregistered  common
stock at $12.00 per share and received  gross proceeds of  approximately  $14.25
million.  These shares were  subsequently  registered  in September,  2001.  The
purchase  agreement  relating  to  the  August  2001  transaction  contained  an
anti-dilution  provision  that would be  triggered  in the event that  shares of
common stock are issued below $12.00 per shares before October 2001.

On February 7, 2002,  we sold  1,345,000  shares of  registered  common stock at
$12.70 per share and received gross proceeds of $17.1 million.

On March 21, 2002, we sold 1,200,000 shares of registered common stock at $10.50
per share for gross  proceeds  of $12.6  million.  Because  the shares of common
stock were issued below $12.00 per share, the anti-dilution  provision contained
in the August 2001 purchase agreement was triggered and as a result, on April 9,
2002, we issued  169,643  unregistered  shares of common stock to certain of our
investors.

On September 26, 2002, we sold  2,500,000  shares of registered  common stock at
$2.00 per shares and received gross proceeds of $5 million.

In December 6 2002,  we sold  1,520,000  shares of  registered  common  stock at
$2.375 per share and received gross proceeds of approximately $3.6 million.

Indebtedness

On December  20, 2002,  we issued and sold a  convertible,  redeemable,  5-year,
interest  bearing  debenture  (note) to Aventis for proceeds of $3 million.  The
note is convertible at Aventis'  option under certain  conditions into shares of
our common stock at a conversion  price  substantially  equivalent to the market
price of the  common  stock at the time of  conversion.  We have the  right  and
obligation  to redeem the note under  certain  conditions at any time within the
next 5 years.

                                      -29-
<PAGE>

Recent Developments

Additional Financing

Subsequent  to year end,  on  February  24,  2003,  we sold to an  institutional
investor 500,000 shares of registered common stock at $2.96 per shares receiving
gross proceeds of $1.48 million and 150,000  unregistered  warrants in a private
placement at $0.125 per warrant for gross proceeds of $18,750.  Each warrant has
registration  rights and entitles the holder  thereof to purchase a share of our
common stock at a price of $2.96 per share for the next five years.

Subsequent  to year end,  on March  31,  2003,  we issued  and sold in a private
placement convertible,  redeemable, 5-year,  interest-bearing notes and warrants
to three institutional investors,  including a substantial  participation by two
existing  investors in Aphton,  for proceeds of $15 million in the first tranche
closing on March 31.  The Notes are  convertible  at a fixed  price of $2.50 per
share;  as part of the  transaction  we also issued to the  investors  five year
warrants with a fixed  exercise  price of $2.70 per share (both are at a premium
to the market price of the common stock as of the last  closing  price),  unless
otherwise  adjusted prior to conversion  pursuant to the provisions of the notes
and warrants. We have the right and obligation to redeem the notes under certain
conditions  at any time  after  the  third  year  from the  issuance  date.  The
securities  have  registration  rights.  In  addition,  and  subject  to certain
conditions,  we are  obligated to sell and one of the  investors is obligated to
purchase an  additional $5 million of such notes and warrants  convertible  into
shares  of our  common  stock,  also with  registration  rights,  in the  second
tranche.  In  compliance  with  regulatory  requirements,  we  intend  to hold a
shareholder's  meeting  to  approve  certain  aspects  of  the  transaction;  in
connection with the shareholder's  meeting,  we have already secured irrevocable
proxies  from  certain  of our  existing  shareholders  to vote in  favor of the
transaction and believe that it will have a strong favorable majority vote.

The selected pro forma financial  information  summarized below shows the effect
of the net proceeds from the equity financing  transaction  received on February
21, 2003 and February 24, 2003 and from the convertible debt financing completed
on March 31, 2003] as if the closing of that  transaction had occurred,  and the
net proceeds from those transactions had taken place, on December 31, 2002.

Balance Sheet Data:                    Pro Forma December 31        December 31,
                                                2002                    2002
                                                ----                    ----
Cash and current investments(1)            $19,971,277              $ 8,573,277
Total assets(1)                            $32,388,980              $15,990,980
Convertible Debentures(1)                  $18,000,000              $ 3,000,000
Total Liabilities(1)                       $45,316,616              $27,316,616
Total stockholders' equity (deficit)       $ 9,927,636             $(11,325,636)
Weighted average shares outstanding         20,789,615               20,747,948
-----------------------
(1)  Subject to  certain  conditions,  including,  without  limitation,  (i) our
     common stock  continuing  to be listed on the Nasdaq and it not having been
     suspended  from  trading or having been  threatened  with  delisting by the
     Nasdaq, or having fallen below the minimum standards for continued listing,
     (ii) no event of default having occurred under the  convertible  debentures
     then outstanding, (iii) our performance of our obligation to deliver shares
     of our common stock upon the conversion of the then  outstanding  notes and
     warrants,  (iv) payment of interest on a timely  basis,  and (iv) our share
     price  remaining  above $3.00 a share,  one  investor  will be obligated to
     purchase an additional $5 million of convertible debentures. If and when SF
     Capital  Partners  Limited  purchases the convertible  debentures,  our pro
     forma  December  31, 2002 (i) cash and current  investments  total would be
     $24,971,277,  (ii) total  assets  would be  37,388,980,  (iii)  Convertible
     debentures total would be $23,000,000,  and (iv) Total liabilities would be
     $50,316,616.

The unaudited pro forma financial  information is not necessarily  indicative of
Aphton's  future  results  of  operations.  The  unaudited  pro forma  financial
information   should  be  read  in  conjunction  with  this  section   captioned
"Management's  Discussion  and Analysis of Financial  Conditions  and Results of
Operations" and with our financial statements and related notes included in this
report.

Nasdaq Listing

On October 15, 2002 and on November 1, 2002, we received  notices from the staff
of the  Nasdaq  National  Market  that our common  stock had failed to  maintain
certain minimum requirements for continued listing on the Nasdaq National Market
and both of the  notices  suggested  that we may want to  consider  applying  to
transfer our  securities to the Nasdaq  Smallcap  Market.  We were  subsequently
advised  by  Nasdaq  that  we  had  regained  compliance  with  certain  minimum
requirements  for continued  listing on the Nasdaq  National Market and that our
common stock would continue to be listed on the Nasdaq National Market,  pending
future review.

Because  our  share  price  is  below  $3 per  share,  we are  currently  not in
compliance with the continued listing requirements of the Nasdaq National Market
and as a result our common stock may be  delisted.  In the event that our common
stock is delisted from the Nasdaq  National  Market,  we would apply to list our
common  shares  on the

                                      -30-
<PAGE>

Nasdaq  Smallcap  Market.  Even if we had to move our securities from the Nasdaq
National  Market,  we believe  that we satisfy all the  criteria for listing our
common stock on the Nasdaq  Smallcap Market which,  among others,  requires that
our share  price not fall below $1.  There is no  assurance,  however,  that our
application  for trading our common stock on the Nasdaq Smallcap Market would be
accepted  or, if  accepted,  that we would be able to maintain  eligibility  for
continued  listing on the Nasdaq Smallcap Market. If our common stock were to be
delisted  from the Nasdaq  National  Market and not  accepted for listing on the
Nasdaq Smallcap  Market,  it could  adversely  affect our ability to raise funds
through stock and debt issuances.

Strategic Outlook

We intend to reduce our spending  during the next twelve months by more than 60%
to less than $16 million from approximately the $40 million during the 12 months
of fiscal year 2002. We will pursue our primary objective of filing for approval
to market G17DT for monotherapy for advanced  pancreatic  cancer patients in the
European  Union,  Canada and Australia by September  2003.  We currently  have a
strategic alliance with Aventis Pasteur whereby Aventis Pasteur will exclusively
promote,  advertise,  market,  distribute  and  sell our  anti-gastrine  vaccine
(G17DT) in North America and Europe. We intend to license G17DT to third parties
to treat human  cancers in other markets  worldwide,  including  Japan.  We also
intend to license, worldwide, products based on our monoclonal antibody platform
targeting  gastrin  receptors on  gastrointestinal  system  cancers and license,
worldwide, G17DT for the treatment of gastroesophageal reflux disease.

We  believe  that our  existing  and  anticipatec  capital  resources  which are
comprised  primarily of cash and  short-term  cash  investments,  including  the
proceeds of equity or other  convertible debt financings or other financings and
interest thereon,  would enable us to maintain our currently planned  operations
through the year  ending  December  31,  2003.  Our working  capital and capital
requirements  will depend upon numerous  factors,  including the following:  the
progress of our  research  and  development  program,  pre-clinical  testing and
clinical  trials;  the timing and cost of obtaining  regulatory  approvals;  the
levels of resources  that we devote to product  development,  manufacturing  and
marketing capabilities;  technological advances;  competition; and collaborative
arrangements  or strategic  alliances with other drug  companies,  including the
further development, manufacturing and marketing of certain of our products, our
ability to maintain  our  listing  status at the Nasdaq  National  Market or, if
necessary,  the Nasdaq Smallcap Market and our ability to obtain funds from such
strategic alliances or from other sources.  Many of these factors are beyond our
control.  In the event that we require  additional  funds, we may be required to
sell additional  equity  securities,  convertible  debt or otherwise,  or obtain
funds through  arrangements  with  collaborative  partners.  If we are unable to
complete such transactions, we may be required to delay, reduce the scope of, or
eliminate one or more of our research or development programs.

We have incurred recurring  operating losses since inception and have a negative
working  capital  at  December  31,  2002 of  approximately  $5.4  million.  Our
independent  auditors  added a  paragraph  to its  opinion  on the  consolidated
financial  statements for the year ending  December 31, 2002 with respect to our
ability to continue as a going concern.  The financial statements do not include
any adjustments to reflect the financings  completed  subsequent to December 31,
2002.  Management  believes  that the receipt and  application  of proceeds from
these  financings,  including the $15 million  financing  completed on March 31,
2003,  the second $5 million  tranche  it  expects to  complete  and our plan to
reduce spending to less than $16 million during the next 12 months will allow us
to  operate  into the first  quarter  of 2004,  without  any  additional  funds.
Accordingly,  management  believes  that after the receipt of these  funds,  the
substantial  doubt  about our ability to  continue  as a going  concern  will no
longer exist.

                          Critical Accounting Policies

The SEC has recently  issued  Financial  Reporting  Release No. 60,  "Cautionary
Advice  Regarding  Disclosure  About  Critical  Accounting  Policies"  (FRR 60),
suggesting  companies to provide  additional  disclosure and commentary on those
accounting  policies  considered  most critical.  FRR 60 considers an accounting
policy to be critical if it is important to a company's  financial condition and
results,  and  requires  significant  judgment  and  estimates  on the  part  of
management  in its  application.  Aphton  believes the  following  represent the
critical  accounting policies of Aphton as contemplated by FRR 60. For a summary
of  all  Aphton's  significant  accounting  policies,   including  the  critical
accounting  policies  discussed below, see Note 2 to the accompanying  financial
statements.

Use of Estimates in the Preparation of Financial Statements
The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions  that affect the reported  amounts of assets and liabilities and
disclosures  of contingent  assets and  liabilities at the date of the financial
statements  and the  reported  amounts  of  revenues  and  expenses  during  the
reporting  period.  Actual  results could differ from those  estimates,  however
management believes such differences are unlikely to be significant.

Research and Development Expenses
Research and  development  costs are expensed as incurred.  These costs  include
internal  research and development  costs, the salaries of dedicated  personnel,
the allocated  salaries of personnel who also perform general and administrative
tasks,  the costs of the dedicated  research and development  facilities and the
costs of  contracted  researchers.  There  is no  allocation  of  administrative
expense or corporate costs to research and development costs.

                                      -31-
<PAGE>

General and Administrative Expenses
General and  administrative  expenses  represent expenses not clearly related to
research and development  expense.  A significant  portion of these expenses are
related to  intellectual  property/patent  legal costs and  salaries,  which are
typically  excluded  from  research  and  development  according to Statement of
Financial  Accounting  Standards No. 2 "Accounting  for Research and Development
Costs."

Equipment and Improvements
Equipment and improvements are depreciated  using  accelerated  methods over the
estimated  economic lives (5-7 years) of the assets.  Improvements are amortized
over the term of the lease,  or the life of the  asset,  whichever  is  shorter,
using the straight-line method. Betterments that substantially extend the useful
life of equipment and furniture generally reduce the accumulated depreciation of
the respective asset.

Income Taxes
Aphton  accounts for income taxes pursuant to Statement of Financial  Accounting
Standards (SFAS) No. 109, "Accounting for Income Taxes," which requires an asset
and liability  approach in accounting for income taxes.  Under this method,  the
amount  of  deferred  tax asset or  liability  is  calculated  by  applying  the
provisions  of enacted  tax laws to the  differences  in the bases of assets and
liabilities for financial and income tax purposes. Income tax expense is the tax
payable for the period and the change  during the period in deferred  tax assets
and  liabilities.   Aphton  regularly   reviews  its  deferred  tax  assets  for
recoverability  and  establishes  a valuation  allowance  based upon  historical
losses, projected future taxable income and the expected timing of the reversals
of  existing  temporary  differences.  As a result of this  review,  Aphton  has
established a full valuation allowance against its deferred tax assets.

Investment Securities
Investment  securities  consist  principally of debt securities issued by the US
Treasury and other US Government  agencies and  corporations  and  investment in
other securities, including mutual funds.

Investment  securities are classified into three categories and accounted for as
follows: (1) Held-to-maturity securities are debt securities that Aphton has the
positive intent and ability to hold to maturity.  These  securities are reported
at amortized  cost. (2) Trading  securities are securities  which are bought and
held  principally  for the  purpose  of  selling  them in the near  term.  These
securities are reported at fair value, with unrealized gains and losses included
in  current  earnings.  (3)  Available-for-sale  securities  are debt and equity
securities  not  classified as either  held-to-maturity  or trading  securities.
Aphton does not have available-for-sale securities. Gains and losses realized on
the  sales  of  investment   securities  are   determined   using  the  specific
identification method.

Aphton's trading securities consist of mutual funds and relate to a Company plan
whereby certain individuals may forego immediate receipt of wages. In connection
therewith,  Aphton  establishes  a liability  for accrued  wages and records the
related  compensation  expense  as  services  are  performed.   Further,  Aphton
segregates an amount of funds in investment  accounts equal to the liability for
accrued wages. The investment  accounts  (trading  securities)  remain assets of
Aphton, and are subject to the general creditors of Aphton. Upon transfer of the
funds to the investment  accounts,  the employees direct the specific investment
of the  funds.  The  changes  in  value  in  the  investment  accounts  (trading
securities)  are recognized as unrealized  gains and losses in the statements of
operations,   with  a  corresponding   increase  or  decrease  to  research  and
development expense and the liability for employees' wages and benefits.

Concentrations of Credit Risk
Aphton's short-term cash investments are held in several financial  institutions
and consist  principally  of insured money market  accounts and cash  management
accounts  that are  collateralized  by or invested in U.S.  Government  and U.S.
Government agency securities.

Aphton's  held-to-maturity  securities  consist of marketable  debt  securities.
These  securities  are issued by a  diversified  selection of corporate and U.S.
government  agencies  with strong credit  ratings.  Aphton's  investment  policy
limits  the  amount of credit  exposure  with any one  institution.  Other  than
asset-backed securities, these debt securities are generally not collateralized.
Aphton has not  experienced  any  material  losses due to credit  impairment  on
investments  in  marketable  debt  securities  in any  year.

                                      -32-
<PAGE>

Unconditional Supply Commitment
Aphton has the unconditional right to receive supplies originally aggregating $9
million from Aventis  Pasteur.  Aphton's  policy is to review the current market
prices of  available  supplies,  if any, to assure  that they  remain  above the
stated  Aventis  Pasteur  contract  price of the materials and that the right to
receive the supplies remains  unimpaired.  Aventis Pasteur is one of the largest
pharmaceutical vaccine manufacturers in the world. Aphton monitors the financial
performance  of Aventis  Pasteur to assure that they will continue to be able to
perform  under the  contract,  wherein  the  special  order  supplies  are to be
provided from supplies  manufactured by Aventis Pasteur in large  quantities and
sold to many  customers,  including  the  U.S.  Government,  as part of  Aventis
Pasteur's  basic franchise  (business).  The contract allows for inflation based
increases in the per unit costs of the supplies which Aphton and Aventis Pasteur
believe are sufficient to assure that there will be no future financial hardship
incurred by Aventis Pasteur in the execution of the agreement.

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk.

Aphton's  market  risks  are  all  immaterial.   Investment  securities  consist
principally of debt securities issued by the US Treasury and other US Government
agencies and corporations and investment in other  securities,  including mutual
funds.

Item 8.  Financial Statements and Supplementary Data.

Financial Statements are set forth in this report beginning at page 42.

Item  9.  Changes  in and  Disagreements  with  Accountants  on  Accounting  and
Financial Disclosure.

Aphton changed accountants from PricewaterhouseCoopers LLP to Ernst & Young LLP,
effective   May   19,   2000,   for   the   year   ended   January   31,   2001.
PricewaterhouseCoopers  LLP was dismissed effective May 19, 2000. The reports of
PricewaterhouseCoopers LLP on the financial statements of the registrant for the
past two years contained no adverse  opinion or other  disclaimer of opinion and
were not  qualified  or modified as to  uncertainty,  audit scope or  accounting
principle.

                                      -33-
<PAGE>

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant.

The  information  required  for this item is  incorporated  by  reference to the
section  captioned  "Election of Directors" in Aphton's Proxy  Statement for the
Annual Meeting of  Stockholders.  The information  under the sections  captioned
"Directors   and   Executive   Officers,"   "Principal   Scientific   Officers,"
"Administrative and Scientific Staff," and "Scientific Advisory Board" in Item 1
of this Form 10-K is also incorporated by reference in this section.

Item 11.  Executive Compensation

The  information  required  for this item is  incorporated  by  reference to the
section captioned  "Executive  Compensation" in Aphton's Proxy Statement for the
Annual Meeting of Stockholders.


Item 12.  Security Ownership of Certain Beneficial Owners and Management.

The  information  required  for this item is  incorporated  by  reference to the
section  captioned  "Election of Directors" of Aphton's Proxy  Statement for the
Annual Meeting of Stockholders.

Item 13.  Certain Relationships and Related Transactions.

Not applicable.

Item 14.  Disclosure Controls and Procedures

(a) Evaluation of disclosure controls and procedures

Based on their  evaluations  as of a date  within 90 days of the filing  date of
this  report,  Aphton's  principal  executive  officer and  principal  financial
officer have  concluded  that Aphton's  disclosure  controls and  procedures (as
defined in Rules 13a-14(c) and 15d-14(c) under the Securities  Exchange Act) are
effective  to ensure  that  information  required to be  disclosed  by Aphton in
reports that it files or submits under the Securities  Exchange Act is recorded,
processed,  summarized  and reported  within the time  periods  specified in the
rules and forms of the SEC.

(b) Changes in internal controls

There were no  significant  changes in  Aphton's  internal  controls or in other
factors that could  significantly  affect these internal controls  subsequent to
the date of its most recent  evaluation,  including any corrective  actions with
regard to significant deficiencies and material weaknesses.

Item 15.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

(a)     Documents filed as part of this Form 10-K

   (i)  Financial Statements:

        Reports of Independent Certified Public Accountants

        Balance Sheets

        Statements of Operations

        Statements of Stockholders' (Deficit) Equity

        Statements of Cash Flows

        Notes to the Financial Statements

  (ii)  Financial Statements Schedules:

                                      -34-
<PAGE>

     Financial  Statement  Schedules  are  omitted  because  they are either not
     required,  not applicable,  or the information is included in the Financial
     Statements or Notes thereto.

(b)  Exhibits

       Exhibit Number                     Description

          3.1            Certificate of Incorporation (Incorporated by reference
                         to Exhibit B of the Registrant's Definitive Proxy
                         Statement filed October 8, 1997)

          3.3            By-Laws (Incorporated by reference to Exhibit C of the
                         Registrant's Definitive Proxy Statement filed October
                         8, 1997)

          10.1A          Collaboration and License Agreement by and between
                         Aphton Corporation and SmithKline Beecham PLC (now
                         GlaxoSmithKline) dated as of June 12, 1998
                         (Incorporated by reference to the Registrant's Amended
                         Annual Report on Form 10-K/A for the year ended January
                         31, 2001 filed on January 29, 2002).

          10.1B          Amendment No. 1 dated May 10, 2000 to the Collaboration
                         and License Agreement by and between Aphton Corporation
                         and SmithKline Beecham PLC dated as of June 12, 1998
                         (Incorporated by reference to the Registrant's Amended
                         Annual Report on Form 10-K/A for the year ended January
                         31, 2001 filed on January 29, 2002).

          10.1C          Amendment No. 2 dated July 2, 2001 to the Collaboration
                         and License Agreement by and between Aphton Corporation
                         and SmithKline Beecham PLC dated as of June 12, 1998,
                         as amended through Amendment No. 1dated May 10, 2000
                         (Incorporated by reference to the Registrant's Amended
                         Annual Report on Form 10-K/A for the year ended January
                         31, 2001 filed on January 29, 2002).

          10.2A          Co-Promotion Agreement and License by and between
                         Aphton Corporation and Connaught Laboratories Limited
                         dated as of February 14, 1997 (Incorporated by
                         reference to the Registrant's Amended Annual Report on
                         Form 10-K/A for the year ended January 31, 2001 filed
                         on January 29, 2002).

          10.2B          Aphton Supply Agreement by and between Aphton
                         Corporation and Connaught Laboratories Limited (a
                         Pasteur Merieux Connaught company, now Aventis Pasteur)
                         dated as of August 1, 1998 (Incorporated by reference
                         to the Registrant's Amended Annual Report on Form
                         10-K/A for the year ended January 31, 2001 filed on
                         January 29, 2002).

          10.2C          PMC Supply Agreement by and between Aphton Corporation
                         and Connaught Laboratories Limited dated as of August
                         1, 1998 (Incorporated by reference to the Registrant's
                         Amended Annual Report on Form 10-K/A for the year ended
                         January 31, 2001 filed on January 29, 2002).

          10.2D          Letter Agreement by and between Aphton Corporation and
                         Connaught Laboratories Limited dated as of August 25,
                         1998 (Incorporated by reference to the Registrant's
                         Amended Annual Report on Form 10-K/A for the year ended
                         January 31, 2001 filed on January 29, 2002).

          10.3A          Debenture Purchase Agreement, dated as of December 20,
                         2002, between Aphton Corporation and Aventis
                         Pharmeceuticals Inc.

          10.3B          Series A Convertible Debenture due 2007, dated December
                         20, 2002, issued by Aphton Corporation to Aventis
                         Pharmeceuticals Inc.

                                      -35-
<PAGE>

          10.4A          Engagement Letter, dated February 20, 2003, among
                         Aphton Corporation, Wharton Capital Partners, Ltd. And
                         Wharton Capital Markets, LLC (Incorporated by reference
                         to the Registrant's Current Report on Form 8-K filed on
                         February 24, 2003).

          10.4B          Stock Purchase Agreement, dated as of February 24,
                         2003, by and between Aphton Corporation and Mainfield
                         Enterprises Inc. (Incorporated by reference to the
                         Registrant's Current Report on Form 8-K filed on
                         February 24, 2003).

          10.4C          Registration Rights Agreement, dated as of February 24,
                         2003, by and between Aphton Corporation and Mainfield
                         Enterprises Inc.

          10.4D          Warrant to purchase  Common Stock,  dated  February 24,
                         2003, issued by Aphton Corporation to Mainfield
                         Enterprises Inc.

          10.5A          Securities Purchase Agreement, dated as of March 31,
                         2003, by among Aphton Corporation and SF Capital
                         Partners Ltd., Heartland Value Fund and Smith Barney
                         Fundamental Value Fund Inc. (Incorporated by reference
                         to the Registrant's current report on Form 8-K filed on
                         March 31, 2003).

          10.5B          Registration Rights Agreement, dated as March 31, 2003,
                         by and among Aphton Corporation and SF Capital Partners
                         Ltd., Heartland Value Fund and Smith Barney
                         Fundamental Value Fund Inc. (Incorporated by reference
                         to the Registrant's current report on Form 8-K filed on
                         March 31, 2003).

          10.5C          Form of Senior Convertible Note due 2008, dated March
                         31, 2003, issued by Aphton Corporation to SF Capital
                         Partners Ltd., Heartland Value Fund and Smith Barney
                         Fundamental Value Fund Inc. (Incorporated by reference
                         to the Registrant's current report on Form 8-K filed on
                         March 31, 2003).

          10.5D          Form of Warrant to purchase Common Stock, dated March
                         31, 2003, issued by Aphton Corporation to SF Capital
                         PartnersLtd., Heartland Value Fund and Smith Barney
                         Fundamental Value Fund Inc. (Incorporated by reference
                         to the Registrant's current report on Form 8-K filed on
                         March 31, 2003).

          23.1           Consent of Ernst & Young LLP, Independent Certified
                         Public Accountants.

          99.1           Certification  of the Chief Executive  Officer pursuant
                         to 18 U.S.C. Section 1350, as adopted pursuant to
                         Section 906 of the Sarbanes-Oxley Act of 2002.

          99.2           Certification of the Chief Financial Officer pursuant
                         to 18 U.S.C. of Section 1350, as adopted pursuant to
                         Section 906 of the Sarbanes-Oxley Act of 2002.

(c)  Reports on Form 8-K

          Aphton filed the following current reports on Form 8-K for fiscal year
          ended December 31, 2002:

     -    on January 23, 2002, announcing the completion of patient recruitment
          for Aphton's gastric cancer clinical trial;
     -    on January 31, 2002, announcing the effectiveness of a registration
          statement on Form S-3 to sell 1,500,000 shares of Aphton's common
          stock;
     -    on February 5, 2002, disclosing the existence of an underwriting
          agreement among Aphton, UBS Warburg LLC and Morgan Keegan & Co., Inc.;
     -    on February 5, 2002, announcing the sale of 1,345,000 shares of
          Aphton's common stock;
     -    on February 7, 2002, announcing the closing of the offer and sale of
          1,345,000 shares of Aphton's common stock;
     -    on February 11, 2002, disclosing that a scientific collaborator of
          Aphton had announced interim results of a gastric cancer Phase II
          clinical trial at the 12th International Congress in Paris on
          anti-cancer treatment;
     -    on March 18, 2002, disclosing certain preliminary unaudited summary
          financial information of Aphton for the period ended December 31,
          2001;
     -    on March 18, 2002, disclosing the existence of an underwriting
          agreement between Aphton and Morgan


                                      -36-
<PAGE>

          Keegan & Co., Inc.;
     -    on March 21, 2002, announcing the closing of the offer and sale of
          1,200,000 shares of Aphton's common stock.
     -    On May 20, 2002, announcing the interim gastric cancer impressive
          results presented at the American Society of Clinical Oncology;
     -    On June 12, 2002, announcing the continued impressive interim results
          with 61% more cancer patients previously reported;
     -    On June 17, 2002, announcing that the Food and Drug Administration
          (FDA) granted orphan drug status for anti-gastrin immunogen for
          pancreatic cancer;
     -    July 23, 2002, announcing that the FDA granted orphan drug status for
          anti-gastrin immunogen for gastric cancer;
     -    On July 29, 2002, disclosing the preparation to file Investigational
          New Drug application with the FDA to examine whether G17DT may be
          efficacious for Gastro-esophageal Reflux Disease (GERD);
     -    On July 31, 2002, disclosing further impressive results with 72
          stomach cancer patients;
     -    On September 23, 2002, announcing fast track designation approved by
          the FDA for anti-gastrin immunogen for pancreatic cancer;
     -    On September 23, 2002, attaching the placement agency agreement with
          Life Science Group, Inc. to sell 2,500,000 shares of common stock;
     -    On September 26, 2002, disclosing receipt of gross proceeds of
          $5,000,000 for the sale of 2,500,000 shares of common stock under Form
          S-3 (File No. 333-92058);
     -    On October 28, 2002, announcing the 53% increased median survival time
          in European Phase III trial for pancreatic cancer;
     -    On November 6, 2002, announcing the receipt of approval to initiate
          clinical trial in Europe for GERD;
     -    On December 3, 2002, attaching placement agency agreement with Life
          Science Group, Inc to sell 1,520,000 shares of common stock for gross
          proceeds of $3,610,000;
     -    On December 6, 2002, announcing receipt of $3,610,000 gross proceeds
          under Form S-3 (File No. 333-92058);
     -    On December 19, 2002, announcing that Australia granted orphan drug
          designation for anti-gastric immunogen for both gastric and pancreatic
          cancers;
     -    On December 20, 2002, announcing sale of note for$3 million and the
          signing of the letter of intent to restructure existing co-promotion
          agreement with Aventis;

          Subsequent to year-end, Aphton filed the following current reports on
          Form 8-K.

     -    On February 6, 2003, announcing the reported latest tumor responses
          from Phase II gastric cancer trial;
     -    On February 21, 2003, announcing the fast track designation approved
          by the FDA for G17DT combined with Cisplatin and 5-FU;
     -    On February 24, 2003, attaching the stock purchase agreement with
          Mainfield Enterprises Inc. and engagement letter with Wharton Capital
          to sell 500,000 shares of common stock for gross proceeds of
          $1,480,000;
     -    On February 24, 2003,disclosing unaudited year-end financial results
          for tye year 2002;
     -    On March 6, 2003, announcing the Phase III data with G17DT for
          pancreatic cancer patients presented to overseas regulatory agency.
     -    On  March 31, 2003, announcing sale of senior convertible note for $15
          million to SF Capital Partners Ltd., Heartland Value Fund and Smith
          Barney Fundamental Value Fund Inc.
     -    On March 31, 2003, announcing expiration of letter of intent between
          Aphton and Aventis.

                                      -37-
<PAGE>

Dated:  March 31, 2003      APHTON CORPORATION


                            By:  PHILIP C. GEVAS
                                 Chairman of the Board, Chief Executive Officer,
                                   and President

Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following  persons on behalf of the  registrant and
in the capacities and on the dates indicated.

<TABLE>
<CAPTION>
                  Signatures                                      Title                                Date
<S>                                         <C>                                                  <C>

                /s/ Philip C. Gevas
        ------------------------------------   Chairman of the Board, Chief Executive Officer       March 31, 2003
                                                              and President
                  PHILIP C. GEVAS

               /s/ William A. Hasler
        ------------------------------------     Vice Chairman of the Board, Director and           March 31, 2003
                                                       Co-Chief Executive Officer
                  WILLIAM A. HASLER

             /s/ Nicholas John Stathis                                                              March 31, 2003
        ------------------------------------                    Director

               NICHOLAS JOHN STATHIS

                /s/ Robert S. Basso                              Director                           March 31, 2003
        ------------------------------------

                  ROBERT S. BASSO

              /s/ Frederick W. Jacobs            Vice President, Treasurer, Chief Financial         March 31, 2003
        ------------------------------------       Officer and Chief Accounting Officer
                FREDERICK W. JACOBS

</TABLE>

                                      -38-
<PAGE>

                  CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
          (Section 302 Certification of the Sarbanes-Oxley Act of 2002)

I, Philip C. Gevas, certify that:

     1. I have reviewed this Annual Report on Form 10-K of Aphton Corporation;

     2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual Report;

     4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this Annual Report is being
     prepared;

     b) evaluated the effectiveness of the registrant's disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     Annual Report (the "Evaluation Date"); and

     c) presented in this Annual Report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

     5. The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     a) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     b) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

     6. The registrant's other certifying officer and I have indicated in this
Annual Report whether or not there were significant changes in internal controls
or in other factors that could significantly affect internal controls subsequent
to the date of our most recent evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.

      /S/ Philip C. Gevas
---------------------------------------
        Philip C. Gevas
     Chief Executive Officer

March 31, 2003

                                      -39-
<PAGE>

                  CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
          (Section 302 Certification of the Sarbanes-Oxley Act of 2002)

I, Frederick W. Jacobs, certify that:

     1. I have reviewed this Annual Report on Form 10-K of Aphton Corporation;

     2. Based on my knowledge, this Annual Report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this Annual
Report;

     3. Based on my knowledge, the financial statements, and other financial
information included in this Annual Report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this Annual Report;

     4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a - 14 and 15d - 14) for the registrant and we have:

     a) designed such disclosure controls and procedures to ensure that material
     information relating to the registrant, including its consolidated
     subsidiaries, is made known to us by others within those entities,
     particularly during the period in which this Annual Report is being
     prepared;

     b) evaluated the effectiveness of the registrant's  disclosure controls and
     procedures as of a date within 90 days prior to the filing date of this
     Annual Report (the "Evaluation Date"); and

     c) presented in this Annual Report our conclusions about the effectiveness
     of the disclosure controls and procedures based on our evaluation as of the
     Evaluation Date;

     5. The registrant's other certifying officer and I have disclosed, based on
     our most recent evaluation, to the registrant's auditors and the audit
     committee of registrant's board of directors (or persons performing the
     equivalent function):

     b) all significant deficiencies in the design or operation of internal
     controls which could adversely affect the registrant's ability to record,
     process, summarize and report financial data and have identified for the
     registrant's auditors any material weaknesses in internal controls; and

     c) any fraud, whether or not material, that involves management or other
     employees who have a significant role in the registrant's internal
     controls; and

     6. The registrant's other certifying officer and I have indicated in this
     Annual Report whether or not there were significant changes in internal
     controls or in other factors that could significantly affect internal
     controls subsequent to the date of our most recent evaluation, including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.

      /S/ Frederick W. Jacobs
---------------------------------------
        Frederick W. Jacobs
     Chief Financial Officer

March 31, 2003

                                      -40-
<PAGE>

                          INDEX TO FINANCIAL STATEMENTS
                              FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
                                                                                      Page
<S>                                                                             <C>

Reports of Independent Certified Public Accountants

Balance Sheets - December 31, 2002 and 2001

Statements of Operations -
  for the year ended December 31, 2002, eleven months ended December 31, 2001
         and the year ended January 31, 2001

Statements of Stockholders' (Deficit) Equity -
    for the year ended December 31, 2002, eleven months ended December 31, 2001
         and the year ended January 31, 2001

Statements of Cash Flows -
  for the year ended December 31, 2002, eleven months ended December 31, 2001
         and the year ended January 31, 2001

Notes to the Financial Statements

</TABLE>

                                      -41-
<PAGE>

               REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

The Board of Directors and Stockholders
Aphton Corporation

We have audited the  accompanying  balance  sheets of Aphton  Corporation  as of
December  31,  2002  and  December  31,  2001  and  the  related  statements  of
operations,  stockholders'  (deficit)  equity  and cash flows for the year ended
December 31, 2002,  the eleven months ended December 31, 2001 and the year ended
January 31, 2001.  These  financial  statements  are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all  material  respects,  the  financial  position of Aphton  Corporation  as of
December 31, 2002 and December 31, 2001,  and the results of its  operations and
its cash flows for the year ended December 31, 2002, for the eleven months ended
December  31,  2001 and the year ended  January 31,  2001,  in  conformity  with
accounting    principles    generally    accepted   in   the   United    States.

The  accompanying  financial  statements  have  been  prepared  assuming  Aphton
Corporation will continue as a going concern. As more fully described in Note 2,
the Company has incurred  recurring  operating  losses since  inception  and has
negative  working  capital at December 31, 2002 of  approximately  $5.4 million.
These conditions raise substantial doubt about the Company's ability to continue
as a going  concern.  Management's  plans in  regard to these  matters  are also
described in Note 2. The financial  statements do not include any adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of this uncertainty.

                                                 /s/ Ernst & Young LLP

Miami, Florida
March 26, 2003

                                      -42-
<PAGE>

                               APHTON CORPORATION
                                 Balance Sheets

<TABLE>
<CAPTION>
        Assets                                                 December 31,     December 31,
                                                                   2002             2001
<S>                                                            <C>              <C>
Current Assets:
Cash and current investments:
     Cash and short-term cash investments                        $7,824,182       $3,176,717
     Investment securities-trading                                  749,095        1,147,417
     Investment securities-held-to-maturity                               -        1,999,006
                                                                 ----------       ----------
        Total cash and current investments                        8,573,277        6,323,140
Other assets (including current portion of
     unconditional supply commitment)                               374,740          595,390
                                                                 ----------       ----------
         Total current assets                                     8,948,017        6,918,530
Equipment and improvements, at cost,
     net of accumulated depreciation and amortization               245,063          188,597
Unconditional supply commitment                                   6,797,900        6,875,515
                                                                -----------      -----------
         Total assets                                           $15,990,980      $13,982,642
                                                                ===========      ===========

       Liabilities and Stockholders' Deficit

Liabilities:
Current liabilities:
     Accounts payable and other                                $14,316,616      $10,715,430
                                                               -----------      -----------
         Total current liabilities                              14,316,616       10,715,430
     Convertible debenture                                       3,000,000                -
     Deferred revenue                                           10,000,000       10,000,000
                                                              ------------      -----------
         Total liabilities                                      27,316,616       20,715,430
                                                              ------------      -----------

Commitments

Stockholders' Deficit:
     Preferred stock, $0.001 par value -
      Authorized:  2,000,000 shares
      Issued and outstanding:  none                                      -               -
     Common stock, $0.001 par value -
      Authorized:  30,000,000 shares
      Issued and outstanding:  24,201,639 shares at
      December 31, 2002 and 17,386,996 shares
      at December 31, 2001                                          24,202           17,387
     Additional paid in capital                                128,956,652       93,566,314
     Purchase warrants                                             298,900          298,900
     Accumulated deficit                                      (140,605,390)    (100,615,389)
                                                              ------------      -----------
         Total stockholders' deficit                           (11,325,636)      (6,732,788)
                                                              ------------      -----------
         Total liabilities and stockholders' deficit           $15,990,980      $13,982,642
                                                              ============      ===========

</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                      -43-
<PAGE>

                               APHTON CORPORATION
                            Statements of Operations
             for the year ended December 31, 2002, the eleven months
                            ended December 31, 2001
                       and the year ended January 31, 2001

<TABLE>
<CAPTION>
                                                      December 31,       December 31,       January 31,
                                                          2002               2001               2001
<S>                                                <C>                <C>                 <C>
Revenue:                                            $            -      $         -     $             -
                                                     -------------      -----------      --------------
Costs and Expenses:
     General and administrative                          2,269,652        2,319,539           1,661,910
     Research and development                           37,682,329       28,676,455          15,302,183
                                                     -------------      -----------      --------------
         Total costs and expenses                       39,951,981       30,995,994          16,964,093
                                                     -------------      -----------      --------------
         Loss from operations                           39,951,981       30,995,994          16,964,093
                                                     -------------      -----------      --------------
Other Income (expense):
     Dividend and interest income                          114,539          393,768           1,554,611
     Unrealized losses from investments                   (152,559)        (662,229)           (987,657)
                                                     --------------    -------------      --------------
      Net loss                                        $(39,990,001)    $(31,264,455)       $(16,397,139)
                                                     --------------    -------------      --------------
                                                     --------------    -------------      --------------
Per share data
     Basic and diluted loss per common share               $(1.93)           $(1.87)             $(1.02)
                                                     --------------    -------------      --------------
                                                     --------------    -------------      --------------
     Weighted average number of
         common shares outstanding                     20,747,948        16,739,267          16,100,108
                                                     --------------    -------------      --------------
                                                     --------------    -------------      --------------
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                               APHTON CORPORATION
                  Statements of Stockholders' (Deficit) Equity
                      for the year ended December 31, 2002,
                    the eleven months ended December 31, 2001
                       and the year ended January 31, 2001

<TABLE>
<CAPTION>
                                                                   Additional
                                         Common        Stock         Paid in         Purchase         Accumulated
                                         Shares       Amount         Capital          Warrants          Deficit            Total
<S>                                 <C>             <C>           <C>               <C>             <C>              <C>
Balance, January 31, 2000            15,592,984       $15,593      $64,799,784        $198,900      $ (52,953,795)      $12,060,482
                                                                                             -
     Exercise of purchase
       Warrants                         115,000           115          246,385                                -             246,500
     Sale of stock, net                 491,509           491       15,246,309               -                -          15,246,800
     Net loss                                 -             -                -               -        (16,397,139)      (16,397,139)
                                     ----------       -------       ----------      -----------    ---------------     -------------
Balance, January 31, 2001            16,199,493        16,199       80,292,478         198,900        (69,350,934)       11,156,643
                                     ----------       -------       ----------      -----------    ---------------     -------------
     Sale of stock, net               1,187,503         1,188       13,273,836               -                  -        13,275,024
     Issuance of warrants                     -             -                -         100,000                  -           100,000
     Net loss                                 -             -                -               -        (31,264,455)      (31,264,455)
                                     ----------       -------       -----------     -----------     --------------     -------------
Balance, December 31, 2001           17,386,996        17,387        93,566,314        298,900       (100,615,389)       (6,732,788)
     Exercise of purchase                                                                    -
        Warrants                         80,000            80            19,920                                 -            20,000
     Sale of stock, net               6,734,643         6,735        35,370,418              -                  -        35,377,153
     Net loss                                 -             -                 -              -        (39,990,001)      (39,990,001)
                                    -----------       -------      ------------        --------     --------------    -------------
Balance, December 31, 2002           24,201,639       $24,202      $128,956,652        $298,900     $(140,605,390)     $(11,325,636)
                                    ===========       =======      ============        ========     ==============    ==============
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                      -44-
<PAGE>

                               APHTON CORPORATION
                            Statements of Cash Flows
                      for the year ended December 31, 2002,
                    the eleven months ended December 31, 2001
                       and the year ended January 31, 2001


<TABLE>
<CAPTION>
                                                          December 31,        December 31,       January 31,
                                                              2002                2001               2001
<S>                                                    <C>                <C>                  <C>
Cash flows from operating activities:
     Cash paid to suppliers and employees                $(35,648,620)       $(24,593,507)       $(15,467,013)
     Sale (purchase) of trading securities                    245,764            (156,467)           (259,957)
     Losses from trading securities                          (152,559)           (662,229)           (987,657)
     Interest and dividends received                          114,539             393,768           1,554,611
                                                         -------------       -------------       -------------
       Net cash used in operating activities              (35,440,876)        (25,018,435)        (15,160,016)
                                                         -------------       -------------       -------------
Cash flows from investing activities:
  Purchase of held to maturity securities                           -         (15,311,311)        (59,471,854)
  Proceeds from maturity of held to
            maturity securities                             1,999,006          26,815,000          52,788,000
  Capital expenditures                                       (157,818)            (92,138)            (61,116)
                                                         -------------       -------------       -------------
    Net cash provided by (used in)                          1,841,188          11,411,551          (6,744,970)
    investing activities                                 -------------       -------------       -------------

Cash flows from financing activities
  Proceeds from convertible debenture                       3,000,000                   -                   -
  Sales of stock                                           35,397,153          13,275,024          15,493,300
                                                         -------------       -------------       -------------
    Cash received from financing activities                38,397,153          13,275,024          15,493,300
                                                         -------------       -------------       -------------
       Net (decrease) increase in cash and
         short-term cash investments                        4,647,465            (331,860)         (6,411,686)
Cash and short-term cash investments:
     Beginning of period                                    3,176,717           3,508,577           9,920,263
                                                         -------------       -------------       -------------

     End of period                                         $7,824,182          $3,176,717          $3,508,577
                                                         -------------       -------------       -------------
                                                         -------------       -------------       -------------

        Reconciliation of net loss to net cash
             used in operating activities
Net loss                                                 $(39,990,001)      $(31,264,455)        $(16,397,139)
Adjustments to reconcile net loss to net cash used in
operating activities:
  Stock purchase warrants                                           -            100,000                    -
  Depreciation and amortization                               101,352             69,978               68,029
  Unrealized losses from investments                          152,559            662,229              987,657
  Non-cash employee research and
  development credit                                                           (152,559)          (662,229)            (987,657)
     Changes in -
       Investment securities-trading                          398,322           (156,466)             379,581
       Other assets                                           220,650            188,269               45,311
      Unconditional supply commitment                          77,615            874,149              820,000
       Accounts payable and other                           3,751,186          5,170,090              (75,798)
                                                         -------------       -------------       -------------
Net cash used in operating activities:                   $(35,440,876)      $(25,018,435)        $(15,160,016)
                                                         -------------       -------------       -------------
                                                         -------------       -------------       -------------
</TABLE>

    The accompanying notes are an integral part of the financial statements.

                                      -45-
<PAGE>

                               APHTON CORPORATION
                        Notes to the Financial Statements

1.   Organization and Operations

Aphton Corporation is a biopharmaceutical  company in late-stage clinical trials
for four cancer indications.  Aphton is developing products using its innovative
vaccine-like   technology  for   neutralizing   hormones  that   participate  in
gastrointestinal  system and reproductive system cancer and non-cancer diseases;
and for the prevention of pregnancy. Aphton has strategic alliances with Aventis
Pasteur (NYSE: AVE),  GlaxoSmithKline (NYSE: GSK), Schering Plough Animal Health
(NYSE: SGP), and the World Health Organization (WHO).

Basis of Presentation and Management's Plans regarding Liquidity

The  financial  statements  have been  prepared in  accordance  with  accounting
principles  generally  accepted in the United States for a going concern,  which
contemplates  the  realization of assets and the  satisfaction of liabilities in
the normal course of business.

The Company has incurred recurring operating losses since inception. At December
31, 2002, the Company has an accumulated deficit and negative working capital of
approximately  $141  million  and $5.4  million,  respectively.  The Company has
financed  its  research  and  development  activities  through  debt and  equity
financings,  licensing fees and contracted  research and  development  fees, and
interest thereon, from its inception.

The Company intends to reduce its spending during the next twelve months by more
than 60% to less than $16 million from the  approximately $40 million during the
twelve months of fiscal year 2002. The Company will pursue its primary objective
of filing for approval to market G17DT for monotherapy  for advanced  pancreatic
cancer patients in the European  Union,  Canada and Australia by September 2003.
The Company  currently  has a strategic  alliance with Aventis  Pasteur  whereby
Aventis Pasteur will exclusively promote, advertise, market, distribute and sell
its  anti-gastrine  vaccine  (G17DT) in North  America and  Europe.  The Company
intends  to  license  G17DT to third  parties  to treat  human  cancers in other
markets  worldwide,  including  Japan.  The  Company  also  intends to  license,
worldwide,  products based on its monoclonal antibody platform targeting gastrin
receptors on gastrointestinal system cancers and license,  worldwide,  G17DT for
the treatment of gastroesophageal reflux disease.

As part of its efforts to improve its  liquidity and  financial  condition,  the
Company is currently pursuing various financing alternatives to address its cash
needs for the year ended  December 31, 2003.  There can be no guarantee that the
Company will be successful or that it will obtain sufficient  funding to address
its cash needs for the year ended  December 31, 2003.  Management  believes that
the receipt and application of proceeds from these financings, including the $15
million financing  completed on March 31, 2003, the second $5 million tranche it
expects to complete and the Company's  plan to reduce  spending to less than $16
million  during the next 12 months  will allow the  Company to operate  into the
first quarter of 2004,  without any additional funds,  which would alleviate the
substantial  doubt about the Company's  ability to continue as a going  concern.
However,  if the Company is  unsuccessful  in its  efforts to obtain  additional
financing  the  Company  may be  required  to  delay,  reduce  the  scope of, or
eliminate one or more of its research or development programs.

The Company's working capital and capital requirements will depend upon numerous
factors,  including the following:  the progress of its research and development
program,  pre-clinical  testing  and  clinical  trials;  the  timing and cost of
obtaining  regulatory  approvals;  the  levels of  resources  that it devotes to
product  development,  manufacturing and marketing  capabilities;  technological
advances;  competition;  and collaborative  arrangements or strategic  alliances
with other drug companies, including the further development,  manufacturing and
marketing of certain of its products, our ability to maintain its listing status
at the Nasdaq National  Market or, if necessary,  the Nasdaq Smallcap Market and
its ability to obtain funds from such strategic alliances or from other sources.
Many of these factors are beyond the Company's control.

On October 15, 2002 and on November 1, 2002, the Company  received  notices from
the staff of the Nasdaq  National  Market  that its  common  stock had failed to
maintain  certain  minimum  requirements  for  continued  listing  on the Nasdaq
National  Market and both of the notices  suggested that the Company may want to
consider applying to transfer its securities to the Nasdaq Smallcap Market.  The
Company was subsequently  advised by Nasdaq that it had regained compliance with
certain minimum requirements for continued listing on the Nasdaq National Market
and that its common  stock would  continue  to be listed on the Nasdaq  National
Market, pending future review.

Because its share price is below $3 per share,  the Company is currently  not in
compliance with the continued listing requirements of the Nasdaq National Market
and as a  result  its  common  stock  may be  delisted.  In the  event  that the
Company's  common stock is delisted from the Nasdaq  National  Market,  it would
apply to list  its  common  stock on the  Nasdaq  Smallcap  Market.  Even if the
Company had to move its securities from the Nasdaq National Market,  the Company
believes  that it satisfies all the criteria for listing its common stock on the
Nasdaq  Smallcap  Market,  which  includes  that its share  price not fall below
$1.00.  There is no  assurance,  however,  that the  Company's  application  for
trading its common stock on the Nasdaq  Smallcap Market would be accepted or, if
accepted,  that the Company would be able to maintain  eligibility for continued
listing on the Nasdaq Smallcap Market.  If the Company's common stock were to be
delisted  from the Nasdaq  National  Market and not  accepted for listing on the
Nasdaq Smallcap Market, it could adversely affect the Company's ability to raise
funds through stock and debt issuances.

Aphton's fiscal year end was changed in March,  2001 from January 31 to December
31, effective for the 11 month period ending December 31, 2001.


2.   Summary of Significant Accounting Policies

Use of Estimates in the  Preparation of Financial  Statements
     The  preparation  of financial  statements  in conformity  with  accounting
     principles   generally  accepted  in  the  United  States  (U.S.)  requires
     management  to make  estimates  and  assumptions  that affect the  reported
     amounts of assets and liabilities and disclosures of contingent  assets and
     liabilities  at the  date of the  financial  statements  and  the  reported
     amounts of  revenues  and  expenses  during the  reporting  period.  Actual
     results could differ from those  estimates,  however,  management  believes
     such differences are unlikely to be significant.

Research and Development Expenses
     Research  and  development  costs are  expensed  as  incurred.  These costs
     include internal research and development  costs, the salaries of dedicated
     personnel, the allocated salaries of personnel who also perform general and
     administrative  tasks, the costs of the dedicated  research and development
     facilities and the costs of contracted researchers.  There is no allocation
     of  administrative  expense or corporate  costs to research and development
     costs.

General and Administrative Expenses
     General and administrative  expenses represent expenses not clearly related
     to  research  and  development  expense.  A  significant  portion  of these
     expenses  are  related  to  intellectual  property/patent  legal  costs and
     salaries,  which are  typically  excluded  from  research  and  development
     according to Statement of Financial  Accounting Standards No. 2 "Accounting
     for Research and Development Costs."

Equipment and Improvements
     Equipment and improvements are depreciated using  accelerated  methods over
     the  estimated  economic  lives  (five  to  seven  years)  of  the  assets.
     Improvements  are amortized over the term of the lease,  or the life of the
     asset,  whichever is shorter,  using the straight-line method.  Betterments
     that  substantially  extend  the useful  life of  equipment  and  furniture
     generally reduce the accumulated depreciation of the respective asset.

Income Taxes
     The Company  accounts for income  taxes  pursuant to Statement of Financial
     Accounting  Standards (SFAS) No. 109,  "Accounting for Income Taxes," which
     requires an asset and liability  approach in  accounting  for income taxes.
     Under  this  method,  the  amount of  deferred  tax asset or  liability  is
     calculated  by  applying  the   provisions  of  enacted  tax  laws  to  the
     differences in the bases of assets and liabilities for financial and income
     tax purposes.  Income tax expense is the tax payable for the period and the
     change during the period in deferred tax assets and liabilities.

                                      -46-
<PAGE>

Per Share Data
     The  Company  complies  with SFAS No.  128,  "Earnings  per  Share,"  which
     specifies the  computation,  presentation  and disclosure  requirements for
     earnings  per  share.  The  Company's  basic  loss  per  common  share  was
     calculated  by dividing net loss by the weighted  average  number of common
     shares   outstanding.   The   Company's   potential   common   shares   are
     anti-dilutive,  and  accordingly,  basic and diluted loss per share are the
     same. Such potential  common shares consist of purchase  warrants (See Note
     7) and could potentially dilute basic earnings per share in the future.

Cash Equivalents
     The  Company  considers  all  highly  liquid  debt  instruments,  including
     short-term cash investments with initial or remaining maturity from date of
     purchase of three months or less, to be cash equivalents.

Investment Securities
     Investment  securities consist principally of debt securities issued by the
     U.S.  Treasury  and other U.S.  Government  agencies and  corporations  and
     investment in other securities, including mutual funds.

     Investment  securities are classified  into three  categories and accounted
     for as follows:  (1)  Held-to-maturity  securities are debt securities that
     the Company has the positive intent and ability to hold to maturity.  These
     securities  are  reported at amortized  cost.  (2) Trading  securities  are
     securities which are bought and held principally for the purpose of selling
     them in the near term.  These  securities are reported at fair value,  with
     unrealized   gains  and   losses   included   in  current   earnings.   (3)
     Available-for-sale securities are debt and equity securities not classified
     as either held-to-maturity or trading securities. The Company does not have
     available-for-sale  securities.  Gains and losses  realized on the sales of
     investment  securities  are  determined  using the specific  identification
     method.

Concentrations of Credit Risk
     The Company's  short-term cash  investments  are held in several  financial
     institutions  and consist  principally of insured money market accounts and
     cash  management  accounts that are  collateralized  by or invested in U.S.
     Government and U.S. Government agency securities.

     The  Company's  held-to-maturity  securities  consist  of  marketable  debt
     securities.  These  securities  are issued by a  diversified  selection  of
     corporate and U.S.  government  agencies with strong  credit  ratings.  The
     Company's  investment  policy limits the amount of credit exposure with any
     one institution.  Other than asset-backed securities, these debt securities
     are  generally  not  collateralized.  The Company has not  experienced  any
     material losses due to credit  impairment on investments in marketable debt
     securities in any year.

Impairment of the Unconditional Supply Commitment
     As discussed in Note 3, the Company has the unconditional  right to receive
     supplies  originally  aggregating  $9 million  from  Aventis  Pasteur.  The
     Company's  policy is to  review  the  current  market  prices of  available
     supplies,  if any,  to assure  that they  remain  above the stated  Aventis
     Pasteur  contract  price of the materials and that the right to receive the
     supplies  remains  unimpaired.  Aventis  Pasteur  is  one  of  the  largest
     pharmaceutical vaccine manufacturers in the world. The Company monitors the
     financial  performance of Aventis Pasteur to assure that they will continue
     to be able to  perform  under  the  contract,  wherein  the  special  order
     supplies are to be provided from supplies  manufactured  by Aventis Pasteur
     in  large  quantities  and  sold  to many  customers,  including  the  U.S.
     Government,  as part of Aventis Pasteur's basic franchise  (business).  The
     contract  allows for inflation based increases in the per unit costs of the
     supplies  which the Company and Aventis  Pasteur  believe are sufficient to
     assure that there will be no future financial  hardship incurred by Aventis
     Pasteur in the execution of the agreement.

Comprehensive Income
     The Company complies with SFAS No. 130, "Reporting  Comprehensive  Income,"
     which established standards for reporting  comprehensive income (defined to
     include  net  income,  unrealized  gains and  losses on  available-for-sale
     investment securities, foreign currency adjustments and certain other items
     not included in the income  statement).  The Company does not have elements
     of other comprehensive income other than net loss.

                                      -47-
<PAGE>

Recent Accounting Pronouncements

In June 2001, the Financial  Accounting Standards Board ("FASB") issued SFAS No.
143,  "Accounting for Asset Retirement  Obligations,"  which addresses financial
accounting  and  reporting for  obligations  associated  with the  retirement of
tangible  long-lived  assets and the associated  asset  retirement  costs.  This
statement is effective  for the Company  beginning  January 1, 2003.  Management
does not expect that adoption of this  standard  will have a material  impact on
the Company's financial statements.

In April 2002, the FASB issued SFAS No. 145,  "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
This  statement  eliminates  the  required  classification  of  gain  or loss on
extinguishment  of debt as an extraordinary  item of income and states that such
gain or loss be evaluated for extraordinary classification under the criteria of
Accounting  Principles Board Opinion No. 30, "Reporting  Results of Operations."
This  statement  also  requires  sale-leaseback  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions,   and  makes  various  other  technical  corrections  to  existing
pronouncements.  The Company is required to implement SFAS No. 145 on January 1,
2003.  The Company does not expect this  statement to have a material  impact on
the Company's consolidated financial position or results of operations.

In June 2002,  the FASB issued SFAS No. 146,  "Accounting  for Costs  Associated
with Exit or Disposal Activities." This statement nullifies Emerging Issues Task
Force  (EITF)  Issue No.  94-3,  "Liability  Recognition  for  Certain  Employee
Termination  Benefits  and Other  Costs to Exit an Activity  (including  Certain
Costs Incurred in a  Restructuring)."  This statement  requires that a liability
for a cost associated  with an exit or disposal  activity be recognized when the
liability is incurred rather than the date of an entity's  commitment to an exit
plan.  The Company is required to implement  SFAS No. 146 on January 1, 2003 for
transactions  that occur after  December 31,  2002.  The Company does not expect
this statement to have a material impact on the Company's consolidated financial
position or results of operations.

In December  2002,  the FASB issued SFAS No. 148,  "Accounting  for  Stock-Based
Compensation--Transition  and  Disclosure,  an amendment of FASB  Statement  No.
123."  SFAS  No.  148  amends  SFAS  No.  123,   "Accounting   for   Stock-Based
Compensation,"  to provide  alternative  methods of  transition  for a voluntary
change to the fair value based method of  accounting  for  stock-based  employee
compensation.  In addition,  SFAS No. 148 amends the disclosure  requirements of
SFAS No.  123 to  require  prominent  disclosures  in both  annual  and  interim
financial  statements  about the method of accounting for  stock-based  employee
compensation and the effect of the method used on reported results. SFAS No. 148
is effective  for fiscal  years and interim  periods  ending after  December 15,
2002.  SFAS No. 148 does not amend SFAS 123 to require  companies to account for
employee  stock  options using the fair value  method.  The Company  adopted the
disclosure provisions required under SFAS No. 148 effective December 31, 2002.

The Company  accounts for  stock-based  awards to employees  using the intrinsic
value method as prescribed by Accounting  Principles  Board Opinion  ("APB") No.
25,  "Accounting  for Stock Issued to  Employees,"  as amended and  interpreted.
Accordingly,  no  compensation  expense  is  recorded  for  warrants  issued  to
employees in fixed amounts and with fixed exercise  prices at least equal to the
fair  market  value of the  Company's  common  stock at the date of  grant.  The
Company has adopted the provisions of SFAS No. 123,  "Accounting for Stock-Based
Compensation,"  through  disclosure only. All stock-based awards to nonemployees
are accounted for at their fair value in accordance with EITF 96-18, "Accounting
for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or
in Conjunction with Selling, Goods or Services".

There were 909,180  employee stock purchase  warrants  granted in the year ended
December 31, 2002, which expire October 1, 2021. Based on Black-Scholes  values,
for the  year  ended  December  31,  2002,  the pro  forma  net  loss  would  be
approximately  $42  million  and the pro forma  loss per common  share  would be
approximately $2.04.

There were 800,360 employee stock purchase  warrants granted in the eleven month
period  ended  December  31,  2001,  which  expire  October  1,  2021.  Based on
Black-Scholes  values,  for the eleven month period ended December 31, 2001, the
pro forma net loss would be approximately $34 million and the pro forma loss per
common share would be  approximately  $2.05.  There were 10,000  stock  purchase
warrants  granted in the eleven  month period  ended  December  31, 2001,  which
expire October 1, 2021, to a non-employee.  Based on Black-Scholes  values,  for
the period ended December 31, 2001, the net loss was increased by  approximately
$100,000.

There were 36,000  employee  stock purchase  warrants  granted in the year ended
January 31, 2001. Based on Black-Scholes  values, for the year ended January 31,
2001,  the pro forma net loss  would be  $16,908,699  and the pro forma loss per
common share would be $1.05. There were 150,000 employee stock purchase warrants
granted in 2000. Based on Black-Scholes  values,  for the year ended January 31,
2000,  the pro forma net loss  would be  $13,231,796  and the pro forma loss per
common share would be $.90.

The following  assumptions were used in the  Black-Scholes  option pricing model
for the 909,180 purchase warrants granted in the year ended December 31, 2002 to
employees.  The stock price and exercise price of these  nineteen-year  warrants
were  set at $1.91 on the  date of  grant,  which  was  November  5,  2002.  The
risk-free rate of return used was 6.0%. The expected dividend yield used was 0%.
The expected time to exercise used was 18.75 years. The expected volatility used
was 100%.

The following  assumptions were used in the  Black-Scholes  option pricing model
for the 800,360 and 10,000 purchase  warrants granted in the eleven month period
ended December 31, 2001 to employees and non-employees,  respectively. The stock
price and exercise price of these twenty-year warrants were set at $14.75 on the
date of grant,  which was October 1, 2001. The risk-free rate of return used was
7.0%.  The expected  dividend  yield used was 0%. The expected  time to exercise
used was 19.75 years. The expected volatility used was 100%.

The following  assumptions were used in the  Black-Scholes  option pricing model
for the 36,000 and 150,000  purchase  warrants granted to employees in the years
ended  January 31,  2001 and 2000,  respectively.  The stock price and  exercise
price  were set at  $14.75  on the date of  grant,  which was May 2000 and 1999,
respectively.  The stock price and exercise price were set at $14.75 on the date
of grant,  which  was May 2000 and 1999,  respectively.  The  risk-free  rate of
return used was 7.0%. The expected dividend yield used was 0%. The expected time
to exercise used was 10 years. The expected volatility used was 100%.

3.   License and Co-Promotion Agreements

In June 1998,  Aphton and  SmithKline  Beecham  (now  GlaxoSmithKline)  signed a
Collaboration and License agreement,  granting GlaxoSmithKline  exclusive rights
worldwide  to Aphton's  GnRH-related  patents and  proprietary  technology.  The
agreement covers the diagnosis, treatment and prevention of GnRH-related cancers
and other diseases in humans. Human cancer indications for the anti-GnRH product
are  prostate,  breast,  ovarian  and  endometrial  cancer.  Additional  medical
indications for the anti-GnRH  product are  endometriosis,  polycystic  ovaries,
uterine fibroids, contraception, infertility and precocious puberty. Under terms
of the  agreement,  Aphton  and  GlaxoSmithKline  are  collaborating  in a joint
product  development  program,  with  GlaxoSmithKline  responsible  for clinical
trials and regulatory approvals, and for worldwide marketing and distribution of
approved  products.  The  agreement  uses a royalty  mechanism  based on product
sales,  in dollars,  worldwide to determine  Aphton's  revenues.  As part of the
Agreement,  GlaxoSmithKline  made an equity investment of $5,000,000 for 237,867
shares of newly issued Aphton common stock.

On February 14, 1997 Aphton signed an agreement with Pasteur  Merieux  Connaught
(Rhone-Poulenc Group) which is now known as Aventis Pasteur, a leader in medical
science and research and one of the world's  largest vaccine  manufacturers  and
marketers,  for a strategic  alliance for all human cancer  applications  of the
Company's  anti-gastrin immunogen product including stomach,  colorectal,  liver
and pancreatic cancers.  Under the terms of the 20-year

                                      -48-
<PAGE>

license  and  co-promotion  agreement,  Aphton will be  responsible  for product
development,  clinical  trials and  regulatory  agency  approvals,  and  Aventis
Pasteur will be responsible for promotion, advertising,  marketing, distribution
and sales of the anti-gastrin  immunogen  product in the United States,  Canada,
Europe  (including  the C.I.S.  countries) and Mexico.  In addition,  Aphton and
Aventis  Pasteur  entered into  agreements  providing for: (a) the supply of the
anti-gastrin  immunogen  product  from  Aphton to Aventis  Pasteur;  and (b) the
supply of certain  components of the anti-gastrin  immunogen product (as well as
other Aphton products) from Aventis Pasteur to Aphton. Aventis Pasteur will fund
the costs  associated  with product  introduction,  promotion,  advertising  and
marketing throughout the territory covered by the agreement.  Under the terms of
the agreement,  in addition to upfront  consideration  aggregating  $10 million,
including $1 million cash and the supply  commitment  (of material  suitable for
human use) of $9 million,  Aphton will  receive the majority of the profits from
sales of the  anti-gastrin  immunogen  product with the balance of profits to be
retained by Aventis Pasteur.

The supply commitment of materials suitable for human use consists of Diphtheria
Toxoid and/or Tetanus  Toxoid.  Aphton may use some or all of the  unconditional
supply  commitment  in the product  under  development  with Aventis  Pasteur or
Aphton may use some or all of the supply  commitment  on other  current  product
lines or on research and development. The supply commitment of material suitable
for  human  use is not  readily  obtained  on the  open  market  in  such  large
quantities.  By  comparison  to lower  quality  material  available  in  smaller
quantities  management  estimates  that  the  market  value of the  supplies  is
substantially  greater than the carrying  value of $9 million,  if they could be
obtained.  The carrying value of the supplies is based on the negotiated License
Fee.  The amount of  material to be  received  is based on  negotiated  per unit
costs,  which  are well  below  the per unit  costs of lower  quality  materials
available in smaller quantities.

The $10 million upfront  consideration  has been classified as a license payment
and  has  been  deferred  and  will  be  recognized   for  financial   statement
(accounting) purposes as revenue within the twenty-year period of the agreement.
The revenue recognition will begin once regulatory agency approval to market the
product has been  received and will be  recognized  ratably  over the  remaining
period of the  contract,  which ends  February  13,  2017.  The Company does not
speculate on the timing of regulatory approvals.

Under the agreement,  Aventis Pasteur shall have the right to terminate upon one
hundred  eighty  (180)  days  prior  notice  to  Aphton,  in the  event  that it
determines,   following   completion  of  Phase  III  clinical   trials  of  the
gastrointestinal  cancer product (and receipt by Aventis  Pasteur of the results
and  supporting  data  obtained in such  trials),  that for safety and  efficacy
reasons it does not wish to co-promote, market or sell the Product. In addition,
either  party may  terminate  the  agreement  by (a) mutual  agreement,  (b) for
uncured material breach and (c) due to liquidation,  insolvency,  etc.  Further,
under the agreement, none of the aggregate $10 million consideration, either the
cash or the  Company's  rights to the full $9  million in  unconditional  supply
commitment,  is refundable to Aventis Pasteur under any conditions.  There is no
provision  under the agreement  for the  unconditional  supply  commitment to be
satisfied  by Aventis  Pasteur  with a cash  payment.  (The $10 million  license
payment was recognized for tax purposes in the year ended April 30, 1997.)

4.  Equipment and Improvements

At December  31, 2002 and 2001,  equipment  and  improvements  consisted  of the
following:

                                                   December 31,   December 31,
                                                      2002            2001
                                                     -----           -----
Laboratory equipment                              $ 681,690       $ 546,158
Leasehold improvements                              398,232         398,232
Office and laboratory furniture and fixtures        255,267         232,980
                                                 -----------      ----------
                                                  1,335,188       1,177,370
Less accumulated depreciation and amortization   (1,090,125)       (988,773)
                                                 -----------      ----------
                                                   $245,063        $188,597
                                                 ===========      ==========

5.  Accounts Payable and Other

At December 31, 2002 and 2001, accounts payable and other was composed of :

                                      -49-
<PAGE>

                                                  December 31,     December 31,
                                                     2002             2001
                                                     ----             ----
Trade accounts payable                           $13,314,943         $9,316,764
Accrued wages payable (see Note 6)                   749,095          1,147,417
Employee benefits payable                            252,578            251,249
                                                 -----------        -----------
                                                 $14,316,616        $10,715,430
                                                 ===========        ===========

                                      -50-
<PAGE>

6.

     Investment Securities

Securities  classified as trading and  held-to-maturity at December 31, 2002 and
2001 are summarized below. Estimated fair value is based on quoted market prices
for these or similar investments.
<TABLE>
<CAPTION>
                       December 31,                                        Unrealized     Unrealized
                           2002                                   Cost        Gains         Losses       Fair Value
                       ------------                               ----     ----------     ----------     ----------
<S>                                                           <C>          <C>           <C>            <C>
Trading securities (carried at fair value):                    $901,654         $--         $152,559      $749,095

<CAPTION>
                       December 31,                                        Unrealized     Unrealized
                           2002                                   Cost        Gains         Losses       Fair Value
                       ------------                               ----     ----------     ----------     ----------
<S>                                                           <C>          <C>           <C>            <C>
Trading securities (carried at fair value):                  $1,809,646         $--         $662,229    $1,147,417

Securities held to maturity (carried at amortized cost):     $1,999,006         $--              $--    $1,999,006
</TABLE>

The Company held no  available-for-sale  investment  securities  at December 31,
2002 or 2001.

The carrying  values of all investment  securities held at December 31, 2002 and
2001 are summarized below:

Security                                             December 31,   December 31,
--------                                                2002            2001
                                                        ----            ----

Trading securities                                     $749,095       $1,147,417
Securities held-to-maturity maturing within one year          -        1,999,006
                                                      ---------       ----------
  Total short-term investments                         $749,095       $3,146,423
                                                      =========       ==========



The Company's trading securities consist of mutual funds and relate to a Company
plan whereby  certain  individuals  may forego  immediate  receipt of wages.  In
connection therewith,  the Company establishes a liability for accrued wages and
records the related compensation expense as services are performed. Further, the
Company  segregates  an  amount  of funds in  investment  accounts  equal to the
liability for accrued wages. The investment accounts (trading securities) remain
assets of the Company,  and are subject to the general creditors of the Company.
Upon transfer of the funds to the investment accounts,  the employees direct the
specific  investment  of the  funds.  The  changes  in value  in the  investment
accounts  (trading  securities) are recognized as unrealized gains and losses in
the  statements  of  operations,  with a  corresponding  increase or decrease to
research and  development  expense and the  liability for  employees'  wages and
benefits.  Unrealized holding losses on trading securities and the corresponding
decrease in research and development expense totaled  approximately  $150,000 in
the  year  ended  December  31,  2002.  Unrealized  holding  losses  on  trading
securities and the  corresponding  decrease in research and development  expense
totaled  approximately  $660,000 in the eleven month  period ended  December 31,
2001.  Unrealized  holding losses on trading  securities  and the  corresponding
decrease in research and development expense totaled  approximately  $990,000 in
the year ended January 31, 2001.

7.   Common Stock, Preferred Stock and Purchase Warrants

Common Stock -

On February 7, 2002, Aphton sold 1,345,000 shares of registered common stock at
$12.70 per share and received gross proceeds of $17.1 million.

On March 21, 2002, Aphton sold 1,200,000 shares of registered common stock at
$10.50 per share and received gross proceeds of $12.6 million. Because the
shares of common stock were issued below $12.00 per share, the anti-dilution
provision contained in the August 2001 purchase agreement was triggered and as a
result, on April 9, 2002, we issued 169,643 unregistered shares of common stock
to certain of our investors.

On September 26, 2002, Aphton sold 2,500,000 shares of registered common stock
at $2.00 per share and received gross proceeds of $5 million.

On December 6, 2002, Aphton sold 1,520,000 shares of registered common stock at
$2.375 per share and received gross proceeds of approximately $3.6 million.

                                      -51-
<PAGE>

Preferred Stock -

     The Company has 2,000,000  shares of authorized  preferred  stock,  none of
     which has ever been issued.

Purchase Warrants -

     Each purchase  warrant  ("warrant")  described below is exercisable for one
     share  of  common  stock  and  is  subject  to  the   restrictive   holding
     requirements  of SEC Rule 144. The terms of the warrant  range from 8 to 23
     years.  In December,  1999 there were  1,000,000  warrants with an exercise
     price of $14.75 reserved for future use of which 810,360 were issued in the
     eleven month period ended  December 31, 2001. In November,  2002 there were
     1,000,000  warrants with an exercise price of $1.91 reserved for future use
     of which 909,180 were issued in the year ended December 31, 2002.

                                      -52-
<PAGE>

      The following table summarizes
      purchase warrant activity over                           Weighted-Average
      the past three fiscal periods:         Number of Shares   Exercise Price
                                             ----------------  ----------------
         Outstanding at January 31, 2000           1,804,400        $13.58
                     Granted                          36,000        $14.75
                     Exercised                      (115,000)        $2.14
                                                   ----------
           Outstanding at January 31, 2001         1,725,400        $14.37
                     Granted                         810,360        $14.75
                     Exercised                             -           N/A
         Outstanding at December 31, 2001          2,535,760        $14.49
                     Granted                         909,180         $1.91
                     Exercised
                                                     (80,000)        $0.25
                                                   ----------
         Outstanding at December 31, 2002          3,364,940        $11.43
                                                   ==========
         Exercisable at January 31, 2001           1,725,400        $14.37
         Exercisable at December 31, 2001          2,029,400        $14.43
         Exercisable at December 31, 2002          3,055,097        $12.74

For warrants  outstanding  and  exercisable  at December 31, 2001,  the exercise
price ranges and average remaining lives were:





                      Warrants Outstanding and Exercisable
                      ------------------------------------
<TABLE>
<CAPTION>
 Range of Exercise        Number       Average     Average        Number           Average     Average
       Prices           Outstanding   Period (1)   Price (2)     Exercisable      Period (1)   Price (2)

<S>                     <C>           <C>          <C>         <C>                <C>          <C>

 $.25  to  $14.00         1,361,580      16.8        $5.71           968,900         13.9        $7.25
$14.01  to  $14.99        1,580,360      15.9       $14.75         1,663,197         16.0       $14.75
$15.00  to  $24.00          423,000      12.9       $17.42           423,000         12.9       $17.42
                          ---------                                ---------
                          3,364,940      15.9       $11.43         3,055,097         14.9       $12.74
                          =========                                =========

(1) Weighted average remaining term in years
(2) Weighted average exercise price
</TABLE>


8.       Income Taxes

Gross  deferred tax assets result from net operating  loss and income tax credit
carryforwards. Realization of these assets is dependent on the Company's ability
to generate  sufficient  future taxable  income,  prior to the expiration of the
carryforwards,  which is dependent on the completion of research and development
activities and successful  marketing of the Company's various  products.  Due to
the uncertainties related to the above and in accordance with guidance contained
in SFAS No. 109, a valuation  allowance has been provided for these deferred tax
assets.  Accordingly,  these assets do not appear in the Company's balance sheet
at December  31, 2002 and 2001.  The changes in the  valuation  allowance in the
year ended December 31, 2002 and the eleven month period ended December 31, 2001
and the year ended January 31, 2001 were $9,580,000, $13,611,000 and $5,553,000,
respectively.

   Deferred tax assets consisted of:      December 31, 2002   December 31, 2001
                                          -----------------   -----------------
     Net operating losses                     $41,207,000        $31,990,000
     Deferred license payment revenues          3,800,000          3,800,000
     Expenses deductible in future periods        381,000            531,000
     Federal and State tax credits              3,637,000          3,124,000
                                             -------------       ------------
     Total deferred tax assets                 49,025,000         39,445,000
     Valuation allowance                      (49,025,000)       (39,445,000)
                                             -------------       ------------
     Net deferred tax assets                 $         --        $        --
                                             =============       ============

                                      -53-
<PAGE>

At December  31,  2002,  for Federal  income tax  purposes,  the Company had net
operating loss  carryforwards of  approximately  $124,228,000 and various income
tax credit  carryforwards,  primarily research and experimentation,  aggregating
$3,080,000, which expire at various dates through 2023.

At December  31,  2002,  for  California  income tax  purposes,  the Company had
various income tax credit carryforwards, primarily research and experimentation,
aggregating $554,000, which expire at various dates through 2014.

For financial reporting  purposes,  a valuation allowance has been recognized to
offset the deferred tax assets related to these carryforwards.

The  reconciliation  of income tax computed at the U.S.  federal  statutory rate
applied to the Company's net loss is as follows:

<TABLE>
<CAPTION>

                                                 Year ended        Eleven months ended       Year ended
                                              December 31, 2002     December 31, 2001     January 31, 2001
                                              -----------------     -----------------     ----------------
 <S>                                            <C>                    <C>                    <C>
 Tax at U.S. statutory rate                        (34.00)%                 (34.00)%            (34.00)%
      State taxes, net of federal benefit          ( 4.00)%                 ( 4.00)%            ( 4.00)%
      Non-deductible items and other                 0.65%                    0.65%               1.09%
      Change in valuation allowance                 37.35%                   37.35%              36.91%
                                                   -------                  -------             -------
                                                       - %                      - %                 - %
                                                   =======                  =======             =======
</TABLE>



9.       Commitments

The Company  has  noncancelable  facilities  leases  expiring  at various  dates
through  December 31, 2007. The leases  provide  various  options to renew.  The
minimum rental commitment for the year ending December 31, 2003 is $153,000, for
the year ended  December 31, 2004 is $140,000,  for the year ended  December 31,
2005 is $56,000,  for the year ended December 31, 2006 is $57,000,  for the year
ended December 31, 2007 is $34,000 and none thereafter. Rental expense for these
leases for the year ended December 31, 2002 was approximately  $151,992, for the
eleven month period ended  December 31, 2001 was  approximately  $73,000 and for
the year ended January 31, 2001 was  approximately  $103,000.  Rental expense is
allocated   between   research   and   development   expense   and  general  and
administrative  expense,  based  on  use,  in  the  accompanying  statements  of
operations.


10.      Selected Quarterly Financial Data (unaudited)

Selected unaudited quarterly financial data for the year ended December 31, 2002
and the eleven months ended December 31, 2001 are summarized below.

<TABLE>
<CAPTION>
     Statement of Operations Data: For the         First             Second            Third            Fourth
            year December 31, 2002                Quarter            Quarter          Quarter          Quarter
                                                  -------           --------          -------          --------

<S>                                           <C>               <C>             <C>             <C>
   Research and development expenditures          $9,690,247          $9,311,658     $10,180,407     $ 8,650,017
   Dividend and interest income                    $  22,288          $   49,325     $    29,011     $    13,915
   Net loss                                     $(10,087,036)        $(9,834,698)   $(10,923,844)    $(9,294,423)
   Basic and diluted net loss per share               $(0.54)             $(0.49)         $(0.52)         $(0.40)
   Weighted average shares outstanding            18,740,210          20,101,639      20,966,639      23,188,386
</TABLE>



<TABLE>
<CAPTION>
    Statement of Operations Data: For the       Two Months
             eleven months ended                   Ended             Second            Third            Fourth
              December 31, 2001                 March 31, 2001       Quarter           Quarter          Quarter
    --------------------------------------    -----------------      --------          --------         --------
<S>                                           <C>               <C>             <C>             <C>
   Research and development
   expenditures                                   $3,306,175       $5,648,381       $7,550,430      $12,171,469
   Dividend and interest income                   $  136,561       $  123,611       $   79,620      $    53,976
</TABLE>

                                      -54-
<PAGE>


<TABLE>
<S>                                           <C>               <C>             <C>             <C>

Net loss                                       $(3,475,187)     $(6,453,059)    $(8,139,156)     $(13,197,053)
Basic and diluted net loss per share           $(0.21)          $(0.40)         $(0.48)          $(0.76)
Weighted average shares outstanding             16,199,493     16,199,493       16,991,161       17,386,996

</TABLE>

The sum of the quarterly basic and diluted net loss per share does not equal the
basic and  diluted net loss per share for the year ended  December  31, 2002 and
for the eleven months ended December 31, 2001 as a result of rounding.

11.      Subsequent Events

Subsequent  to  year  end,  on  February  24,  2003,  the  Company  sold  to  an
institutional  investor  500,000 shares of registered  common stock at $2.96 per
shares  receiving  gross  proceeds of $1.48  million  and  150,000  unregistered
warrants in a private  placement  at $0.125 per  warrant  for gross  proceeds of
$18,750. Each warrant has registration rights and entitles the holder thereof to
purchase a share of the Company's common stock at a price of $2.96 per share for
the next five years.

Subsequent  to year  end,  on March  31,  2003,  issued  and  sold in a  private
placement convertible,  redeemable, 5-year,  interest-bearing notes and warrants
to three institutional investors,  including a substantial  participation by two
existing  investors  in the  Company,  for  proceeds of $15 million in the first
tranche closing;  the proceeds will be wired today. The notes are convertible at
a fixed price of $2.50 per share; as part of the transaction  Aphton also issued
to the investors  five year warrants  with a fixed  exercise  price of $2.70 per
share (both are at a premium to the market  price of the common  stock as of the
last closing price),  unless otherwise adjusted prior to conversion  pursuant to
the  provisions  of the  notes  and  warrants.  The  Company  has the  right and
obligation  to redeem the notes under  certain  conditions at any time after the
third year from the issuance date. The securities have  registration  rights. In
addition,  and subject to certain  conditions,  the Company is obligated to sell
and one of the  investors is obligated to purchase an  additional  $5 million of
such notes and warrants  convertible into shares of our common stock,  also with
registration  rights,  in the second  tranche.  In  compliance  with  regulatory
requirements,  Aphton intends to hold a shareholder's meeting to approve certain
aspects of the transaction;  in connection with the shareholder's  meeting,  the
Company has already  secured  irrevocable  proxies  from certain of its existing
shareholders  to vote in favor of the transaction and believes that it will have
a strong favorable majority vote.

                                      -55-